5 Tips On The Path to Financial Freedom

So, you’re buried in debt and don’t know how to dig yourself out of it. Besides praying for a cameo on Till Debt Do Us Part, here are five practical methods to help get you back on the straight and narrow towards your own financial freedom. Self control is the first step, as the sooner you get a handle on this aspect the easier you’ll find managing your finances becomes. The five steps below won’t work if you can’t exercise restraint. Avoid temptations like the mall if you’re the type who can’t stick to a budget once you get exposed to the allures of “sales.” 

1. Take Control of Your Own Finances
Only trust yourself with your hard-earned money, as other people will find ways to (mis)manage it for you, including many of those financial experts who work on commission. Often they’ll lead you down the path that’s most rewarding for THEM. Investing is a bit of  crapshoot no matter how much number crunching your advisor may be capable of. Investments can pay off, but don’t bet the farm or bank on it as a retirement plan. Expecting your money to magically work for you is fool’s gold. Rarely will you come out the winner long-term. Short term gains, sure, but human beings are inherently greedy and will chase the dangled carrot until they’ve got no investment dollars left! Hard earned money lasts longer. It’s your money, learn how to manage it! There’s a wealth of FREE information out there nowadays, including countless books and online resources at your fingertips. Remember to use a critical lens when researching, as some sources may have motivating factors behind their words. Ultimately, you decide what information you can utilize and apply to your own situation. You can’t go wrong investing in an index mutual fund or RSP that invests in the market average. Often they come out the winner in the long run. See #4 for more.

2. Make a Monthly Budget
Spreadsheets aren’t fun, but are a perfect beginner’s tool for anyone looking to get a better handle on their finances. List out all of your monthly FIXED expenses (mortgage, car payments etc.) and then compare with your monthly FIXED revenues. Only once that’s completed should you allocate a monthly stipend for entertainment and savings etc. If the numbers in column A and B are comparable, you may want to seek out a second job to help ease the burden or dig deeper into your daily expenses to find ways of cutting costs down. Maybe you can live without that daily double-double from Tim Horton’s. Little things add up and cutting some of the fat from your expenses can do as much for you as a raise at the workplace can. You never want to rely heavily on credit cards, as I’ll get to in #3.

3. Prioritize Your Debts
If you make a habit of putting all your purchases on credit cards, be sure you’re keeping close tabs on your monthly balances. I’m all for using plastic to pay when you can reap the travel or gift incentives associated with it, but not if you end up paying interest that exceeds the incentives received. A no-brainer, but believe me, annual interest rates of 18% on a balance that hovers around $1,000 will far out-weigh any positive incentive gains in travel vouchers or the like. If you have outstanding credit debt, get it paid down. This should be your first priority. You should only need one credit card. If you have more than three, cut up the extras you rarely use and trash them for good! It won’t affect your credit rating and you won’t have the temptation burning a hole in your wallet. If you want to invest in a RSP, but have credit debt, you know the answer here. Pay the credit card firstIn terms of priority, this is where your extra cash should flow on debt repayments:

  • Credit Cards. They will steal your soul if you let them. Keep that balance at 0 at month end! 
  • Mortgage. The sooner you can get this paid down, the better. For example, a 30-year mortgage on a $200,000 home would result in $142,000 in interest paid at the end of the term. With a 25-year term, you’d pay $115,000 in interest – a savings of $27,000. Prioritize your mortgage payment, even if it means cutting into your “fun” expenses a bit.
  • Car loan. Interest on car loans can be higher than your mortgage, but unless you have a fetish for luxury cars, the total balance shouldn’t be high enough to lead to outlandish monthly interest payments on top of the principle. If you’ve got some extra cash flowing, by all means pay it down early, but it shouldn’t come at the cost of groceries or one of the previous above mentioned expenses. My take with cars… fight the temptation to upgrade, especially before you’ve got it paid down completely – throw those dealership fliers in the trash. We all know the value plummets as soon as you drive it off the lot, so you might as well run the thing until it has nothing left. You should get several years of use out of a car AFTER you’ve paid it off. For men (and women) with small egos who require a fancy sports car and personal licence plate to feel dignified, by all means continue as is, but I’d rather spend money on experiences, as I’ll explain in #5.

 (To learn more about credit, check out Understanding Credit Card Interest.) 

4. Start Saving for Retirement Early 

TFSAs/RSPs: I’m sure you’ve seen these acronyms before. The Tax-Free Savings Account is a relatively new thing, while Retirement Savings Plans have been around since the dawn of time. Both are relatively safe investment methods that result in similar returns over the long term. You’ll have experts on both sides of the fence here, and there are pros and cons to both, but if you have money available to invest without any outstanding credit debts, by all means smart money can be made here. I think investing monthly into both is a wise move. You can set up a bi-weekly pre-authorized withdrawal through your bank to keep you consistent with it. That money was never in your hands to begin with, so it doesn’t hurt to lose it. I don’t have any numbers in front of me, but investing $100 a month from age 25 to 55 can only yield good results in the end. 

5. Don’t fall into the Materialistic Trap
We can’t go a day without someone trying to get their hands on our money. We are bombarded with sales pitches. Don’t fall into the trap! I’m all for saving for something you truly want and buying it when you’ve got the cold, hard cash to do so, but spending money you don’t have to upgrade your TV by four inches so the neighbour will stop poking fun at you is NOT a wise investment. Material possessions might give you some excitement and pleasure in the short-term, but it’s a fleeting happiness. Sooner or later that beautiful kitchen upgrade will start looking pretty stale, and then you’ll start watching H&G TV to get ideas for your next big upgrade. It’s a vicious cycle that NEVER ends.My advice: Spend your extra cash on EXPERIENCES with LOVED ONES, whether that be a weekend getaway somewhere or a week-long vacay in Mexico, the memories fostered (good or bad, who cares) will last far longer than the sparkle on those new counter-tops. They make for good stories that you can add to years down the road (exaggerate the details) for full effect at family gatherings! The perks are endless. 🙂

One footnote: I don’t mean be happy living in a slum and be content with it. Upgrade if you have to, and when you have the money to do so, but upgrading just for the sake of upgrading – to a bigger house, bigger car, bigger cat – won’t lead to a bigger sense of satisfaction or happiness, so don’t be fooled into thinking it will. Seek happiness in life’s simpler pleasures and you’ll live a far more rewarding existence. If you get too caught up in material pursuits, you’ll miss all the fun. Seriously.


Mitch Calvert is a Winnipeg-based fitness coach for men and women like his former self. Heavyset in his 20s, he lost 60 pounds and now helps clients find their spark and lose the weight for life.