Since I started telling friends and family about my financial goals this year, I’m amazed to hear some of the stories. I guess since I opened up the floodgates many people feel comfortable to tell me their own stories of how they improved their credit rating and got on a better financial track.
Admittedly, it is also quite nice to know that my family and I weren’t alone in our financial challenges. One thing that struck me was the fact that so many of us had taken a lot of time to get down to taking responsibility over our situation. It was almost like we all lived in an age of delusion.
For some it was a feeling of entitlement that we were owed money and should be allowed to spend whatever we wanted. Others – which is the category I believed my family fell into – just was trying to get by and enjoy life. As I started going through this journey and talked to people who had made real change in their lives, I decided that those who were succeeding were the ones who were keeping the past behind them and looking towards the future.
Why taking responsibility is so important to build a healthy financial future
Creating and sticking to a budget is at the very heart of financial responsibility. People are never too young to begin this process. When I look at my kids, although they don’t have to worry about paying for food and shelter, there is a good chance that setting aside money for meals out, dates, car payments and car insurance will be considered important. By creating a budget that addresses all these relevant expenses and going through the prioritization process, it is easier to understand where the pay from that part time job is going and how to use that money to better effect.
I also learned a lot about financial responsibility from a friend of mine, for our purposes we’ll call him Adam. When Adam was single and he had a bad tendency to avoid planning, being the perfect target for impulse buys. He got married last year – a major expense in itself – and he moved in with his new wife. Then, right after all of this happened – you guessed it, they announced they were having a baby. Both of them have good jobs but a lot started to happen in a short space of time. With them still having to pay off some wedding and honeymoon bills, they suddenly had to start spending on baby gear. It started to add up and they got themselves in a bit of a situation. They took out more credit to get what they needed but definitely started spending over their means. At first, Adam reflected that they were just in denial – like most of us are. On the surface, they weren’t buying anything extravagant but just doing what they needed to so they could build their new life together.
After Adam’s baby was born, they didn’t have much time to focus on finances. They were lucky to pay their bills off on-time. A few months later, they decided to apply for a new credit card and a few weeks later got a letter that shocked them. They were declined – the letter stated that they didn’t want to take a risk on them. Well, in so many words. Adam was shocked – they both had great jobs and were making decent money. They also thought that they paid their bills on time – what happened?
To find out what was going on, they got a copy of their credit report. Just like me, Adam found it a real eye opener. Their credit score was a lot lower than the Canadian average and they were on the border of being in the “fair” category which really surprised them. Adam had booked some time off of work and thought it would be valuable to take the time to understand where they went wrong. Long story short, Adam realized that both his wife and him had maxed their credit cards out in the last couple of years. Also, they had very high debt to credit ratios, meaning that most of the money they had been given access to was being used. Also there were a couple of notes on Adam’s file about a missed payment or two.
The first thing Adam wanted to do was ring up the credit bureau and give them a piece of his mind. He wanted to tell them if they understood how much had happened in the past couple of years. He also wanted to blame them for being insensitive to his situation. Before he did that, he called up a lawyer friend to discuss what he could do once he got in touch with them.
Luckily he made that call first. The lawyer friend started to try and bring Adam back to reality. He didn’t blame Adam for what happened but he did try to act as a pseudo devil’s advocate. He asked Adam why they needed to apply for another credit card at all and also wanted to understand why they had been spending so much. Adam had answers to some but not to all. He knew that he couldn’t explain the expenses they had accrued on their last pre-baby vacation or justify the high-end baby carriage they ended up going with when there other more-affordable models they could have gone with.
After Adam’s conversation, he took a bit of time on his own to reflect on everything. In those moments, Adam made a major choice. He knew that he could have passed blame for his current situation to everyone but him and his wife or he could start taking responsibility. Following his chat with his lawyer friend, Adam remembered that he offered to refer him to a free financial counsellor if Adam was interested. He appreciated that and knew that not all finance advice was free. This was something that could really help get his family’s finances back on track.
When he finally sat down with the financial advisor (and calmed down a little) he encountered a very productive conversation. The advisor helped him realize where he may have gone wrong – since they were overwhelmed; they weren’t thinking enough about each purchase. The advisor asked him to think about in what places they could trim costs and to set up another meeting for them.
It’s still early days for Adam but he’s taken the first step. Working together with his wife, Adam has made a long list of areas where they can scale back. He also told me that he didn’t think it was going to feel much different without these elements either. Adam also seemed more at ease that he was aware of his situation and knew that there was a way to improve it.
Although Adam’s isn’t an extreme case, most of us have found ourselves in similar predicaments. A number of things that happen in life can surprise us, often helping us lose our balance. The best thing that Adam did – that is truly the first step – was to take responsibility for his situation and stop playing the blame game.