As we start off the New Year, it's a great time to think about our long-term goals — where we are, where we would like to be and how we might get there. There are so many of us struggling with debt; it can be daunting and distressing. And we are not alone. Canada is the most indebted country in the world — with over 40% of Canadians living paycheque-to-paycheque. So how do we fix this?
How might 2020 be the year that all Canadians build financial resiliency and thrive?
Strive is a social enterprise working to build financial resiliency and equal opportunity for individuals while also pushing for change in our economic system. It has been working on these questions and trying to pinpoint the ingredients for financial resiliency in today’s world of increasing debt levels, precarious employment, and economic inequality. We have interviewed Canadians about financial stress, curated financial journeys and led multi-week workshop series on financial resiliency. Through this work, we have identified that having long-term personal goals is a critical ingredient of financial resiliency.
Really, long-term goals?
Yes, long-term goals, and for three key reasons.
Long-term goals provide: 1) direction for your efforts, 2) motivation to keep going and 3) a benchmark to evaluate your success and efforts. Below we will dig a bit deeper into each of these pieces.
Long-term goals provide direction for your efforts
Financial health is difficult to maintain. Costs like housing, education and food are all growing while incomes are stagnant. Despite our best efforts we often feel like no matter how hard we work, we can’t seem to get ahead.
Getting ahead means being able to overcome the myriad of systemic and individual challenges we face. It's impacted by the 35,000 choices we make each day, which can collectively add up to either contribute to or detract us from our success.
Knowing what kind of life we want, where we want to live, what we want to achieve, and the types of experiences we would like to have will help us make the right choices for ourselves. Having long-term goals will slowly (but surely) lead us to where we want to go. For example, if I know that I want to be able to transition my career and become debt-free in 5 years, I will spend time understanding what it will take, digging into the costs associated with any additional education, assessing financing options, and developing a plan. And when decisions arise that can impact my progress, I'll be able to assess them against their contributions to my goals. So if my partner suggests an all-inclusive vacation, I may be inclined to suggest a staycation instead in order to continue to reduce my debt and better set myself up for a career transition.
Real life example of how long-term goals can guide you to make better decisions
Rohan is a great example of this. As an entrepreneur who was a new immigrant, he had difficulty accessing credit at a reasonable cost. As such, he was using his credit card to provide working capital for his business, and as a result, had built up $30,000 in credit card debt. Rohan had visited a number of financial institutions and had been continuously told that he did not meet the requirements for lower cost loans. So he focused on building his business.
With a baby on the way, he and his wife had a clear goal of buying a home to raise their family. This long-term goal forced Rohan to re-examine his finances. To accomplish his goal, he needed to develop and implement a plan that addressed his debt and allowed him to build up a down payment. Rohan started pushing for solutions, invested in researching loan options, and spoke with different bank managers. In a short period of time, Rohan was able to reduce his credit card interest rate from 19% to 12% and secured a lower cost loan from an alternative institution. With his goal in mind, Rohan also established a budget and worked to cut his expenses. He will save $50,000 in interest costs over the life of his loan and continues to work to reduce his debt, access lower priced capital and save for a down payment.
Long-term goals provide motivation to keep going
Dealing with debt is difficult. Missing out on activities, small luxuries and often necessities to slowly pay back debt requires a high level of commitment and discipline. It's easy to get off track when our progress is slow or seems too far away. Long-term goals help provide that motivation we need to keep going.
Richard, a participant in one of the Strive workshops, demonstrated this perfectly. Richard had experienced debt challenges previously and had worked his way out of them. But after breaking up with his partner, Richard once again started to experience financial challenges. Like many others getting out of a relationship, his expenses increased as he was now living alone. He also increased his spending as he was emotionally dealing with the break up. His increase in debt led to a significant increase in stress and anxiety. Knowing that life would be much better without this, Richard set a goal of being debt-free. This goal gave him the right motivation to secure a second job. Although getting a second job wasn't something he necessarily wanted to do, he realized that being debt-free in the long run was well worth the extra work required in the short run.
Long-term goals provide a benchmark to evaluate your success and efforts
Life is complex. And we often get mixed messages about what's best for us. We see social media feeds where everyone is going on vacation, checking out the newest restaurants, buying the latest tech gadgets and enjoying great concerts. But having specific long-term goals lets us assess whether or not we are actually moving forward or just revving our wheels. Without long-term goals, we can often get side tracked and compare ourselves to others. Comparing oneself to others can lead to drastically different actions than if we just focused on our own goals.
If my goal is to pay off my credit card debt in 2 years, I will spend more time working on my plan, figuring out how to increase my earnings, how to cut my expenses, and what tasty lunch options I can make. And as a result, I'll spend less time looking at and following the behaviour patterns of others.
Real life example of how long-term goals can help you evaluate your progress
Isaac provides a great example of this. As a new immigrant, Isaac’s goals included acquiring a job in his field and owning a home in the city for his family. After arriving in Canada, he spent significant time and effort researching and applying for jobs. He finally received a job offer in a small town four hours away from the home he rented with his wife and three kids. Knowing his long-term goals, he evaluated this job opportunity against them. He decided to take the job and commuted home to be with his family on weekends.
With his long-term goals in mind (working in his field and owning a home), he continued to apply and look for jobs closer to home. Within 10 months, he was able to transfer to a role that was 1.5 hours away from his home and family. Evaluating his success and progress, and seeing that there was still some work to do, he invested in Canadian education and continued applying to more jobs. Two years after arriving in Canada, Isaac is living with his family and working in his field earning $60,000 a year. He is now working on saving for a down payment.
Yes, long-term goals are the key to success in 2020!
Financial resiliency is difficult to obtain. There are a number of systemic challenges — ranging from stagnating wages and precarious employment to rising housing and education costs — that can make it even more difficult. Having clear long-term goals is critical to being able to overcome these challenges. It provides the direction, motivation and the benchmark needed to align those 35,000 daily decisions we make towards making a real impact on our goals. It is very much a key ingredient in the financial resiliency recipe.
As we kick off the New Year, invest some time to clarify your long-term goals – it can help you effectively deal with your debt, too!
This article was written by Monica Da Ponte, the founder of Strive. To learn more about Strive and how everyday Canadians have successfully managed to advance towards their goals, please visit letsstrive.ca.