68: Money Chat: You've Got Questions... I've Got Answers

Carolyn: [00:00:00] You're listening to Elevate Your Paycheck, the podcast that is dedicated to transforming your financial journey. I'm Carolyn, your host and money coach that will guide you out of that paycheck to paycheck cycle and onto a path towards financial independence. Are you ready? Let's do this. Hey guys, welcome back to the show. Today I am super pumped. So you're gonna have to excuse me because I just finished a masterclass and it was called four effective ways to boost your credit score. And it was a blast, right? I always have. Fun talking about finances. I think you guys know that by now.

And there was just such great interaction and questions. And so, you know, if you will join next time, give me a shout out that you're a listener. I love to meet you and greet you. And if you missed it, I'm sorry. Make sure to sign up, right? There's one that's happening on [00:01:00] Saturday and then there's another one that's happening on Tuesday next week.

So I'm sure you can squeeze a little bit of time in your schedule to boost your financial literacy. And to be honest, these are strategies that everybody needs to know. So if you have time, I'm going to put the link in the show notes. So make sure that you register and join me on either one of those sessions.

So today since I'm, you know, kind of in the mood to do a Q& A, we did some Q& A at the masterclass, I thought, okay, let me talk about some of the commonly asked questions of me. That's the thing about finances, right? There's just so many unknowns. There are so many terms that we use. There's so many things that we're not taught when we're young.

And we just learn from experience. And unfortunately, that means that, you know, you fall down, right? You fall down, you have to get up and you try again. Nothing wrong with that. You know, that's part of the process, but, you know, if we have a little bit of education, maybe we'll be better off, right? So why don't we go through some of the commonly [00:02:00] asked questions, and I hope this will be helpful for you moving forward.

Okay, so one of the biggest questions that I get is what should I prioritize, saving money or paying off debt? Now, both of those things are important, okay? Saving money kind of gets a bad rap because saving is not fun, right? It takes long to build to get towards a goal it requires a bit of discipline.

Spending is a lot more fun. Just saying, but saving is a very important part of money management and it has to be incorporated in the money that we're making or the income that's being brought in. So what should you do? You only have X amount of money, right? So where the, do you put it away and save it or do you pay off your current debt?

Now the question really resides is how much debt do you have? Because If you have a lot of high interest credit card debt, then I would say, you know, your focus should be [00:03:00] paying off that debt because you're losing money. You're not gaining anything. You're just losing, right? Because you're paying the banks to hold your debt for you.

So I'm not saying that you don't save at all, but you Put the higher percentage towards paying off your debt. That's number one. And then when I talk about saving, I want you to make sure that all the money management components that we talk about, like budgeting and saving for an emergency fund and making sure you're living within your means, all these things need to be done first before you think about investing.

Right? So saving is one thing. I want you to make sure you have your emergency savings fund. But investing is the fun part. And the fun part comes after you do the work. Right? You want to be able to have your money work for you. But you got to do the legwork in the beginning. You can't be having a budget that's wild and not under control.

And then go ahead and start [00:04:00] investing. Right. So there's a kind of an order to things, but definitely, I think that if you have a lot of high interest debt and you don't have a savings plan, kind of balance it out, you know, 70, 30, depending on your situation and how much money you have. That's what I would do.

Now, another question that I get is specifically about kind of renegotiating your debt repayments and the question is, can negotiating a lower debt repayment with a creditor affect your credit score? So again, if you head into that session, the masterclass, we're going to talk a lot about what affects the credit scores.

But in this case in particular, the negotiation of a lower debt repayment, it actually does have an impact on your credit score. So sometimes people like to use what they call a debt settlement and you're in discussions with your creditor about the amount and they decided, okay, that we're going to settle on a lower amount now because you settled, [00:05:00] it may have a negative impact on your credit score.

So. Services like nonprofit credit counseling, they can do that. But you know, just be aware that yes, it will have an impact on your credit score. Now, another question that I get is what is the difference between good debt and bad debt in terms of credit score? Now, I'm not going to give away everything in the masterclass, but You know, bad debt is probably consumer spending.

That is number one, right? It's there's no asset tied to it. It is really just you racking up your card because you've spent too much and you're not able to pay it back, right? That is considered consumer debt. Now, the other type of debt, which is a mortgage or even a car to some degree is different because there is an asset tied to that debt.

And the asset protects the bank from losing their money. If it defaults, right, they can always grab the asset to [00:06:00] have the debt repaid. And so, yes, it does make a difference on your credit score, the type of debt that you have. Now I mentioned emergency savings funds in the prior question, but one specific question about that I get is can emergency funds play a role in maintaining or improving credit score?

So it's kind of interesting how this works because it's indirectly related. If you build an emergency savings fund. The ideal amount is three months worth of your salary and that is put away in a fund that is cash Accessible it doesn't have to be a regular savings account Although a high interest savings account is a good place to put it, but it can be in a cash EFT or GIC anything like that, but you have to be able to withdraw that cash when you need it You can't lock it in in, right?

And you don't want a penalty either. So these are the things you kind of have to look at where to [00:07:00] put this emergency savings fund. But if you have one and it is built up significantly to about a three month buffer, when an emergency happens, you don't have to rely on debt. And that is where the impact is on your credit score, because most people, and I think I've said this in the podcast, most people will use debt as an emergency reaction.

They'll use the credit card to get out of an emergency and, help them out. Nothing wrong with that if you have the cash lying around to pay it off, right? And so that's what the purpose of the emergency savings fund is. So having that fund, does it really improve your credit score? Well, indirectly, because you have the funds and you don't need to go into debt.

Okay, I love this next question. How can I make more informed spending decisions to avoid falling into debt? Spending is my specialty, right? I love to shop. I'm not going to lie. [00:08:00] It is a pastime. It's something that I enjoy. I like to do it with friends and my family, you know, it is just a thing, right?

But having informed spending practices is different, right? Than just going out and spending money. We talk about budgeting a lot and I think I'll get into a series about budgeting in the weeks to come, but budget is not. Something that is just allocate your income to your expenses and then whatever's left over pay off debt or save.

It's really isn't about that because if it was so easy and straightforward, then everybody would have one and follow it because we are people. We're humans. We change. We have emotion, spending and money is tied into that. And so it has to be reflected in your budget as well. You can't just have a budget that's strictly income and expenses because what about everything else?

So that budget has to [00:09:00] include a component for that type of spending. And if there is no room for that, that is when the budget needs to be looked at and adjusted. Right? So how do you make more informed spending decisions? You fall within the category of the amount that you've allocated for that purpose.

And that is how you kind of stick to your Budget, which ultimately is going to lead you to your financial goals. Okay, I just did a webinar at an institution the other day and it was talking about financial habits and I know I talked about this on the podcast as well and talking about money mindset and one of the questions that came up there was Are there any tools or apps that you recommend for tracking expenses and managing money more effectively?

So I get this question a lot. People want me to recommend different apps that are out there. Now, it's very difficult for me to do this because everybody is at a different level of [00:10:00] financial literacy. Some people Even myself I would think I have a little bit higher than the average financial literacy.

Those apps are very complicated. There are some that are super complicated and then there are some that are really basic, right? So it really depends on the person and what it is that you're comfortable with. There are even apps available within your banking situation, right? And I think the government actually released a budget tool of its own.

I'm going to link that actually in the show notes because congrats to the government for once, you know, providing something that is going to be useful to the fellow Canadians. So I will put that link for you that they've just released a new budget tool, but These are the things that you need to look out for.

Number one, it should have a tracking ability to track expenses. Because the number one thing about budgets is that you need to know how much money you're spending. And it has to be easy. Right? Because nobody likes tracking. Tracking is not [00:11:00] fun, right? It needs to be super easy and it needs to be able to track the expenses.

So that's number one. Number two, you want to be able to allocate money up towards a budget, right? So for example, if you have food, or you have gas or transportation costs, you know, whatever it is, you need to be able to allocate an amount that you think you can stay within that particular range for a month period.

Right, so you need to be able to allocate that. And then, finally, the third thing that it needs to do is to give you some stats. Am I following, based on what I'm entering in my tracking, is it telling me am I on track? Am I off track? You know, what is the situation? And does it compare to prior months?

Does it compare to prior years? Right? So you want to know the stats because with more information, you can make educated decisions. So these apps need to provide you with that type of information. And then actually, as a bonus tip, it has to be easy to [00:12:00] use. You can't have a complicated app because there's no way you're going to use it.

Right. So it's something that's just you pull out your phone. Boom, boom, boom. It's done. Right? It has to be super easy. Sometimes I even just use the notes app on my phone to track expenses. I go into the store. I made a purchase. I come out into my car. I have the receipt. I plug it into the notes app. And then later I'm going to put it into the proper budgeting tool.

Right? Easy. Not too hard, not difficult to manage. That's what you want. Something that is super easy and it's going to help you in your day to day life. Because who wants life to be more complicated? Another question that was actually very important that I received was, How do life changes like marriage, divorce, or having children affect your money management and credit scores?

You know, we forget about finance when it comes to these life events. Everything costs money. We know that, but how is it having an impact on your money management and your scores? It has a big one, right? So [00:13:00] for example, if you're getting married that person's all their baggage with their financial history is becoming joint to yours.

Now, it doesn't mean you have to have joint accounts and you know, merge everything, right? Everybody's different and everybody sets up their banking differently, but At the end of the day, you're still married and you may have some assets that are tied or whatever the story is, right? So now their financial history is kind of blending and meshing into your financial history.

So you kind of have to talk about money management. And I've talked about money dates before, it's very important to set aside a time to talk about money so that you're both on the same page. You don't have to have the same exact ideals, but you have to have the same goals. Okay. Very important difference.

And then, in the case of a divorce, that happens a lot and again, now it's the reverse, right? You're separating everything and now you have to learn to manage your money on your own. [00:14:00] And maybe for some people the partner did that, and now they have to do it on their own.

So it has a big impact on the way you do things, and this is why education is very important. And then finally, having children. Now, I can tell you, my kids, well, one is in their 20s, and the other one is late teens. So, I have been through a lot of expenses when it comes to my kids. Right? Between the sports, and the clothing, and the school activities, and the travel, like You know, you name it, we've spent it.

And so kids cost money. Love them to death, but they do cost money. And so this is something that you have to kind of plan and talk about and allocate for, because there's going to be certain times in your life where the expenses are much higher than others. And so if you can ebb and flow as they get older, you think about it when they're young, right?

What's going to happen in 10 years? Let's plan for that. What's going to happen in another 10 or even [00:15:00] five year increments, right? Think about that and really plan and allocate for the things that your kids are going to be into and doing. Okay, I can go on and on with this. This is super fun. So the next question, and I think I'll end with this one.

What role does financial literacy play in effective money management and maintaining a good credit score? So I can not talk enough about financial literacy. It is super important. So if people masterclass, you need to join. It is so important. You want to have as much knowledge. about how to manage your money as possible, because it is not taught in schools.

It's just the beginning. Our children are starting to learn it, but for the most part, they're going to learn either from you as a parent, or they're just going to learn on their own and make their own errors. And so it doesn't matter what stage of life you're in, whether or not you're a new parent and have [00:16:00]young children, whether you're middle aged and your kids are growing up.

teens into 20s, or if you're, heading into retirement, it doesn't matter what stage of life you are. Financial literacy is the most important thing when it comes to managing your money well, and it's not even about the money management. It's about reaching your goals. Right? Don't forget about that.

The why. Why are you doing all of this? Why are you listening to this podcast? Why do you go to the masterclasses? Why? Right? The reason why is because you want to improve your situation, you want to reduce your stress, and ultimately you want to reach those goals. Whether it's buying a house, whether it's travel, whether it's paying for your kid's education, whether it's moving, you know, there's so many reasons why, but know your why, because the why is going to get you through doing the work that it takes to get there.

So that was fun. [00:17:00] I got to do that more often. So don't hesitate to send in your questions. I just gathered that from the different webinars and things that I've taught over the last few months, but don't hesitate to send me an email reach out and I hope to see you on the masterclass on Saturday or on Tuesday.

All right guys. So we'll see you next week. Same time, same place.

Thanks for listening to the elevate your paycheck podcast. If you love this episode and need deeper support, head to thefinancialmoment. com backslash support to see how we can support you no matter where you are at today. We help our clients organize their finances, create savings, eliminate debt and create a roadmap to their financial goals, which makes them more in control than they ever dreamed possible.

So head to thefinancialmoment. com backslash support and make this the next step in your financial journey. [00:18:00]