Q: I’ve recently become more involved in my father’s affairs because he’s had to move into a care home. While he wasn’t happy about the move and still asks to go home, each day is getting a little easier. Throughout this process I’ve also become acquainted with his long-time girlfriend, who up until the last few months was helping him with his day-to-day activities. He trusts her, and we can all see how important they are to each other. However, I am pretty sure she has taken money out of his bank account without anyone’s knowledge. There is an investigation going on but it’s scary to think that he could be out several thousand dollars … This got me worrying about money disappearing from my own accounts. What can we do to protect ourselves? ~Phillip
A: Taking over someone’s financial affairs comes with great responsibility, and seeing our most vulnerable family members taken advantage of is extremely disconcerting. I’m glad to hear that you reported your father’s missing funds and that an investigation was started. Remain vigilant so that you are apprised of any findings and resolutions and keep copies of any paperwork you receive in a safe place. The exact circumstances of the suspicious activity will also determine any next steps you may have to take, but the financial institution will guide you through that process.
Thinking about our bank accounts being compromised is already scary enough; if we let our minds run away with our fears about all the ways we could lose our money, we may never get a good night’s sleep again. The good news, however, is that when it comes to our personal finances, there is a lot we can do to keep our money where it belongs.
Here are five scary financial facts that could haunt you and what to do to protect yourself:
1. The biggest threat to your bank account
The thought that your hard-earned cash could disappear without your knowledge is certainly an unnerving feeling. Beyond cybersecurity issues, privacy breaches, identity theft or hackers intercepting e-transfers, do you ever wonder what the biggest threat to your money might be?
It’s likely you. The way we use technology does not always follow best practices with regards to security and privacy measures, but impulse spending is really the biggest threat. Unplanned purchases, spending more than we had planned, or giving in to impulsive buys can add up to a lot of “missing” cash. And if those purchases are made with credit, the resulting debt can make the situation that much worse. To neutralize this threat, adopt a realistic household budget to keep your spending in line with your goals.
2. A trick with no treat: Using a credit line to pay off a credit card
Canadians are amassing huge amounts of debt on their secured credit lines. Using a lower-interest rate credit product (e.g. a home equity line of credit) to pay off a higher-interest rate one (e.g. a credit card) can decrease how much interest you pay overall. However, the flexible repayment terms of credit lines allow you to keep on borrowing.
The day of reckoning will come. Rather than shifting debt around or robbing Peter to pay Paul, work to pay off what you owe before taking on any new debt. If you find that you’re not able to put your credit card away and live with the money you earn, consider how to scale your lifestyle and spending choices back to what you can afford. It will mean making some tough choices, but the sooner you start living within your means , the sooner you can start tackling your debt.
3. A frightening lack of savings
We know that savings is a superpower against debt , but a lack of savings will impact our choices every step of the way. A savings cushion helps us afford the life expenses we don’t anticipate, e.g., a decrease in income, a home or car repair bill, or an increase in our strata fees. Savings helps us enjoy life a little more easily with vacations and purchases beyond what we need. It also lets us enjoy our golden years, which have their share of surprise expenses as well.
Dust off the old piggybank and if you do nothing else for your finances this year, start saving.
4. Monstrous mortgage renewals
Whenever you come to the end of your mortgage term, your mortgage is up for renewal at the current interest rates. If rates have gone up since your last term, you could be in for a wicked surprise.
To avoid ending up in a mortgage you can’t afford, buy a little less house than you think your budget allows. Or if you plan to refinance your mortgage to take equity out of your home, calculate your higher payments carefully ahead of time. By not stretching your housing budget to its limit, you’ll protect yourself against rising interest rates .
If you’ve already locked yourself into a mortgage that stretches your budget, look for ways to trim a little extra from your discretionary expenses so that you can top up your mortgage payments by even $20 or $50. That little bit extra goes straight onto your principal and will bring your balance owing down more quickly than regular payments alone. (If you can’t top up your payments right now, consider changing how often you make your payments .) This will create a small buffer so that when you face higher interest rates at some point down the line, you’ve got some wiggle room and aren’t forced to consider selling your home.
5. Ominous economic predictions
Predictions are calculated guesstimates at best, and epic fails at their worst. While economists can make predictions about how the economy will perform over the next 12 to 18 months, if the past decade or two has shown us anything, it’s that anything can happen. The factors that influence our economy are so varied and intertwined with other factors that making accurate predictions is getting harder.
Most economic factors are beyond our control but you can still take the guesswork out of creating a stable financial future for yourself and your family. Focus on what you can control to survive an economic downturn . Keep your skills current in case you need to switch jobs. Work to pay off debt so that a lender can’t tell you how to manage your money. Building up savings gives you freedom to take advantage of opportunities and doesn’t force you to rely on others to make ends meet.
The bottom line on what to do about scary financial facts
There’s no magic spell or potion that makes you a great money manager; we all learn on the job. The key, however, is planning ahead, spending at least a little less than you earn, and increasing your level of financial literacy. Doing these three things will keep what’s haunting you at bay and help you prepare for whatever life throws your way.
Scott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by email , check www.nomoredebts.org or call 1-888-527-8999.
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