Talbot Boggs column: Measure investment success to goals, not returns

Most people would agree that saving money is a great principle to follow in life.

Slow growth in the income of Canadians is leading to greater levels of debt which, for the first time in history, have exceeded the country’s Gross Domestic Product (GDP).

According to recent Statistics Canada figures the debt held by Canadian households rose to 100.5 per cent of GDP in the second quarter this year, up from 98.7 per cent in the previous three-month period.

Part of the reason for the increase is that the income of Canadians has remained relatively flat over the last five years and may have even declined when inflation is taken into account.

“Survey data suggests that household income growth has stalled as respondents reporting household income above $100,000 have hardly increased in five years,” says Alec Milne, principal at research provider Framework Partners. “In fact, real incomes have actually declined when inflation is taken into account.”

The result is that Canadians are barely able to make ends meet and are taking on debt to maintain their lifestyles.

A Canadian Payroll Association (CPA) report released in September shows that 48 per cent of Canadians say it would be difficult for them to meet their financial obligations if their pay cheque was delayed by even a single week.

Twenty-four per cent said they likely would not be able to come up with $2,000 if an emergency were to come up within the next month. Thirty-nine per cent say they feel overwhelmed by their level of debt, 31 per cent say their debt levels have risen over the last year and 11 per cent don’t think they will ever be debt free.

“The slow or no rise in the income of Canadians may be a contributing factor to the increasing levels of debt, but you have to ask the question that if incomes are stalling, why are people taking on more debt?” Doug Jones, a licensed insolvency trustee with BDO Canada said in an interview. “When income slows, the last thing people should do is take on more debt. They should review their spending and expenses in relation to their income, but the last thing people want to do is to slow their lifestyle and consequently they take on more debt to sustain it.”

An obvious solution to the problem is to set a proper budget based on income.

“Most people know what their income is, but a lot don’t know where their money goes,” says Jones. “People need to sit down and prepare a SMART budget based on their needs versus their wants.

The first step is to be Specific and define clearly exactly what it is you want to accomplish in your financial plan.

The second is to Measure. That is, define when you will know you have accomplished your goal or goals.

The third is to be Action-oriented. Define the steps you will need to take to be successful.

Be Realistic. Be sure you set realistic and achievable targets given your strengths and abilities.

And set realistic Timelines and deadlines to meet your goals.

Historic low interest rates and borrowing costs are another economic reality that is contributing to high debt levels.

Another report has shown that 700,000 Canadians admit they would struggle to meet their financial obligations if interest rates went up by just 0.25 per cent.

“That’s a staggering statistic because rates aren’t going to stay this low forever,” Jones says. That’s why it’s important for people to get on top of their situation now, prepare a proper, realistic budget and start reducing their debt now before rates rise, because sooner or later they will.”

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations.

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