Money Matters

Sure, saving your pennies is tougher than spending them. But when it comes to cash, it pays to be in control.

By Kate Carraway

Continued from page 3

On debt... and not having any

There are some good reasons to go into debt. Most people will face down loans for school and their first home and, in some places, a car. This can actually be good for you. Having a credit history (as long as it’s a good one—this plan backfires quickly if you’re not completely responsible with payments) demonstrates to banks that you’re a good candidate for loans, which you may need when you decide to start your sure-to-be-amazing-and-pretty-please-give-me-a-discount small business. Deciding if you want to invest while dealing with debt depends on your personal situation, so sit down with your bank rep (remember the nice lady with the mints from before?) to sort out how much cash goes where.

That said, debt is probably the biggest factor in screwing over girls’ finances. The average debt load (or “sum total”) for women is in the thousands, and even very smart women are subject to the lure of credit cards. Credit cards are handed out like candy on college and university campuses and, while it is wise to have one, it is not wise to abuse it. When used improperly (i.e., spending more than you’re able to easily pay back), a $50 sweater can become a $200 sweater after factoring in the interest and service charges. Making the alluringly low “minimum payment” does not constitute paying off your card—this is actually a conduit for pricey interest to build up.

Take advice from Laurie Campbell, a counsellor with the Credit Counselling Service of Toronto: “Limit the number of credit cards you have. People get in trouble because of multiple cards. More credit doesn’t equal a better credit rating.” It’s important to understand the ramifications of using credit cards: the annual fees, the interest rates, the perks and what needs they meet. Campbell points out that around 90 percent of credit card purchases are impulse buys. To avoid temptation, don’t carry the card with you. Ideally, credit should only be used for emergencies and in situations where it’s absolutely essential, and as long as the purchase can be paid off when it’s due.

More than just the plastic demon can give you debt trouble, mind you. Lines of credit, overdraft accounts, student loans, household utilities, phone and cell phone companies can affect your credit rating, and that is something you don’t want to be messing with. Says Campbell: “Anytime you’re in a situation where you’re biting off more than you can chew, it will affect you in the long term.”

Restoring your credit rating after it goes sour isn’t easy, and it can take up to six years for strikes against you to fall off your credit report. So, keep credit closely in check and if it does go awry, see a counsellor right away to consolidate your debt, look into options like pre-paid (or “secure”) cards and build up your Registered Retirement Savings Plan (RRSP) and savings to put yourself in a better position in creditors’ eyes.

Become a financial guru

As you progress through life—getting that first terrible job in a cubicle farm or that first amazing job on an organic farm—managing your financial situation will become even more crucial. Not only will you be in charge of your savings or existing investments, you’ll be handling the bigger challenge of divvying up a salary that sounds titanic when you’re celebrating your new adult life, but seems pitifully small when you’re faced with rent, groceries, utilities, car payments, clothes and entertainment. Don’t fret. With a solid plan that you stick to, anything is possible. Keep this stuff in mind:

• Most people don’t start an RRSP until they’re working full-time, but these days, many folks work part-time for an extended period. Starting an RRSP in your early twenties is insurmountably better than leaving it until you have “enough.”
• Stay up to date, as financial information and rules can change with time and from place to place. Staying actively involved in the financial world will only work to your advantage.
• Consider investment clubs. The book Chicks Laying Nest Eggs offers a good intro to how these can benefit independent-minded ladies.
• Maintain your A-game. Even if you already have a solid financial plan, books and articles dedicated to making you richer can give you new ideas. I read Smart Women Finish Rich and realized just how much my “Latte Factor” (the cash I was spending on things like coffee) had to do with my lack of money, despite my having a well-paying job.

Knowledge is power, and power is important. Having control over your money means that you have control over your life. And, as you know, the freedom to do what you want and have what you want, when you want it, is priceless.