Being cautious while spending money may sound like a contradiction in terms, but financial advisors are the first to recommend this for guilt free shopping. Karin Mizgala, CEO of Money Coaches Canada, a national network of financial professionals based in British Columbia, has never been an advocate of borrowing, preferring to set aside funds for clothing, travel, car repairs in advance.
But Mizgala also realizes that there are things such as a home, car, or major renovation that leave no other option. If you must borrow, make sure to shop around for the best interest rates.
Wolfgang Klein, senior investment advisor and VP at Toronto-based Canaccord, says secured credit lines offer the best rates, but require an asset such as a house. An unsecured line of credit, on the other hand, only requires a good personal credit rating, though the rate is a little higher.
Next best is a bank loan with a fixed lending period and payment amount, and is customarily used for cars, boats, special holidays and home renovations. You can also borrow to invest in RRSPs, though Mizgala doesn’t advocate this unless “you’re financially very savvy, have maxed out your RRSPs, and have your home paid off. If the interest rates rise, which they will, and your stocks don’t do so well, you’ll end up with a negative balance.”
When it comes to mortgages – which you need for a home — Mizgala recommends sticking with a term of 25 years or less because the difference in monthly payments isn’t significant, but you’re paying a lot longer.
Credit cards are a last option. While convenient for larger purchases like a computer, you’ll get on a debt cycle if you don’t pay the balance each month. The other proven danger with credit cards is that you end up spending 30-40 per cent more than with cash. Another similar trap to watch out for, Mizgala adds, is “buy now, pay later because you always think you’ll be in a better position to pay it later.”
But there’s something that should be done before you head out to your nearest bank to load up on cash.
“Think about your relationship to money, and we all have one,” says financial therapist Amanda Mills of Loose Change, Toronto, who counsels people in understanding their money behaviour and their debt.
Too often, Mills says, money is “driving the car, instead of being harnessed to accomplish what you really want with your life.”
