October 25, 2016 | By: Alan McQuarrie

Planning for a Financial Hurricane

Earlier this month, U.S. Federal Emergency Management Agency administrator Craig Fugate told a crowd of students that hurricane Mathew was a “recoverable event.”  “We’ve seen this before,” he said, “and it’s never pleasant for the people going through it.” 

Federal officials in Canada also issued a red alert over the country’s real estate sector.  Evidently the red hot housing sectors in Toronto and Vancouver are driving up prices in surrounding areas.  Canada Mortgage and Housing Corporation officials warn that there is a strong risk of problems due to rising prices and over-valuation in real estate.  Even a small rise in interest rates may subject many households to unbearable financial hardship.  There are increasing signs that interest rates are set to rise from record lows.  When rates do rise, many people may find themselves unable to afford their homes.  Middle class families who have taken advantage of low interest rates may see loan costs for housing, transportation and consumer goods rise significantly. If a small rise in interest rates poses a problem for you then its time to seek out credit counselling

If we Canadians know we are in the path of a financial hurricane, how can we be assured that we will be safe?  How can we determine if the coming financial storm will be a “recoverable event?”  The following tips can help you stay financially safe. 

  1. Heed the warnings.  Florida governor, Rick Scott repeated many times, “if an evacuation is ordered for your area, leave immediately. First responders cannot rescue you once the storm hits.”  Unfortunately, many people failed to heed the warnings.  They just could not imagine the wind, rain and floods taking their lives.  Now is the time to build up savings, reduce unnecessary debt and start to live within your means.  Heading to the financial high ground means letting go of current high levels of debt and changing your financial situation.  A high debt budget that feels safe now will not withstand the storm of rising rates. Try to create a budget that incorporates varying levels of raised interest rates to see what your finances could withstand. 
  1. Create a financial emergency plan.  Keep it on hand and update it when needed.  What would you do if you lose your job in the next recession?  How would you survive if you had no income for six weeks?  What relatives and friends would you turn to for emergency assistance?  What assets could you quickly sell to come up with badly needed cash?  What essential expenses would you need to cover?  Answering these and other questions can help you prepare for financial disasters. If you need help creating a financial emergency plan and are already looking for a way out of debt then contact our credit counsellors for help. 
  1. Stay out of the path of storms.  Recognize when a financial plan is just not sound.  Recently one congressman complained of a federally insured home that had racked up 34 flood claims in 32 years.  The $69,000 home had received $633,000 in insurance payouts over the years.  We are currently in an artificially low interest rate environment.  Over the last few years, we have been building our financial plans in the “floodplain.”  Even a small increase in interest rates could trigger a domino effect of toppling bankruptcies for both business and consumers. 

It’s time to recognize that the financial storm clouds are forming.  Low rates are coming to an end.  Housing might be only one sector of many that will plunge our economy into a financial maelstrom.

By taking some simple steps now, you can keep yourself safe and dry.  


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