Canadians have enjoyed relatively low interest rates for a very long time. Many of us have taken advantage of this “free” money by borrowing and leveraging our financial position.
As a result, we may be carrying large mortgages and balances on our credit cards and lines of credit, and can just barely meet our monthly obligations. Not surprisingly, the Bank of Canada announced its first interest rate increase in seven years. How that will impact each of you will depend on your job security, debt level, and whether you have emergency savings to fall back on.
Sadly, according to the Canadian Credit Counsel, many people have been using their homes as ATM’s to fund lifestyle purchases such as vacation properties, home renovations, lavish trips, and so on. If that sounds like you, the rate increase may have you concerned about where you stand financially.
Put your financials to the stress test – you may have to adjust your lifestyle spending.
Whenever there is an interest rate increase, the smart thing to do is reassess your personal financial situation whether you have debt or not. It’s also an opportune time to reset your attitude towards money – especially those of you who are living large and may unconsciously spend money to be accepted, boost your status, or increase your circle of friends. Spending money you don’t have is essentially letting “want” take priority over “need”. This “me too” mindset, encouraged by social media, has created a perfect storm in which we continually compare ourselves to others and engage in “gotta have it” spending.
Does it really matter what’s trending?
We live in a world that promotes consumerism and to follow what’s trending. While it’s difficult to avoid a culture that promotes lifestyle spending – because who doesn’t want to indulge in life’s luxuries – rising interest rates may force us to do so.
To assess your personal finances and get your spending under control, follow these 4 easy steps:
1. Adjust your lifestyle
Take stock of how you have been living and spending money. You may need to consider how your lifestyle has been eating away at your cash flow.
2. Stop spending
Harness your emotions and evaluate how you spend money. This may sound trite but it is the only way to take control and stop spending. Put your credit cards into a safety deposit box, pay down debt, and find cheap and cheerful ways to have fun.
3. Seek financial advice
Your finances can’t be fuzzy. Find out where you stand and how the impact of rising rates will affect you.
4. Set financial goals
Boost your emotional well-being and set new financial goals – whether that’s to save more, become debt free, or both.
It’s a big wake up call when interest rates rise because the impact will take a bite out of your wallet. It’s only a question of how much. Take action now and you will get back on track.