Managing financial stress

Brad Milne, CIRP, LIT
Chartered Insolvency and Restructuring Professional, Licensed Insolvency Trustee, MNP Ltd.
May 2, 2021

Finances is one of the top causes of stress for Canadians. Financial stress can overflow into many other facets of life, becoming a constant source of worry and anxiety. Many financial situations can cause stress such as having a large amount of debt, personal financial mismanagement, having a partner who is not good at budgeting money, or even seasonal events such as back-to-school shopping. In my experience, the most common cause of financial stress is an unexpected event such as job loss or reduced hours of employment. Other life-changing events such as health problems and divorce can also lead to extended periods of reduced household income and subsequent budgeting difficulties.

Recognizing that you are experiencing a period of financial difficulty is a positive first step in resolving the issue as it demonstrates self-awareness that some financial help may be required. Here are some tips for reducing your financial stress.

Create a budget and identify areas in which you may be able to reduce expenses to a level that meets your current income, and allows you to steadily pay off debt, if applicable.

Track your monthly expenses to determine where your money is going and whether you are on target to meet your budget. There are many budgeting programs and mobile apps available in which you can record and categorize daily spending with the objective of establishing a monthly tally. The results may surprise you and will serve to identify areas in which savings can be achieved. For example, cooking at home rather than dining out, carpooling or using public transportation where possible to reduce fuel expenses, or modifying non-essential services such as cable can trim monthly costs.

Establish an emergency savings fund that you can draw from when in financial distress. For example, if you have an unexpected car repair or your hot water tank needs replacing, knowing you have cash on hand will keep your financial stress to a minimum and your existing budget intact. An emergency fund will vary depending on your income, monthly expenses, number of dependents and lifestyle, however most experts suggest that you should have at least three to six months of living expenses in your emergency fund to pay for essentials if you are unable to work. This should include savings for rent or mortgage payments, property taxes, groceries, insurance and utilities – the bills you must pay to ensure you can meet your basic needs. If you are paying off debt, a smaller emergency fund may be necessary at first. Consider saving a small fund of approximately $1,000 to get started and to help ease financial stress while you focus on debt repayment. This will also prevent you from having to go into more debt should a small emergency arise.

If you haven’t been able to establish an emergency fund or need to stretch those funds as far as possible, consider some of the following strategies:

  • Review your budget and identify areas in which you may be able to reduce your expenses to a level that meets your current income as noted above.
  • If your hours of employment have been reduced, seek out additional part-time employment where possible.
  • Inventory your personal property and determine if you have any items that can be sold to provide an immediate cash injection.
  • Consult with your utility providers to determine if they have any financial assistance programs. In the case of hydro, consider your eligibility for an equal payment program to avoid seasonal highs and lows.
  • If you’re renting, consider looking for a roommate. If paying a mortgage, consider taking in a boarder on a temporary basis.
  • If you’re paying student loans, consult the program or provider to determine if you’re eligible for interest relief or some other form of assistance. This may also apply to other forms of credit.

Monitor your total debt servicing (TDS) ratio. This ratio measures the proportion of your gross (i.e. before tax) income that is already spent on monthly payments of debts such as credit cards, lines of credit, vehicle loans and housing costs. As a rule, the monthly cost required to pay your total debt load should not exceed 40 percent of your gross income. Having a ratio less than 40 percent typically means that you have an acceptable level of debt. Conversely, lenders are unlikely to grant or extend further credit if your monthly payments exceed the 40 percent threshold and those that do are typically higher-risk lenders who apply outrageous interest and service charges.

Consult with a financial expert. Many people don’t know where to turn when struggling with debt or financial planning. You may discuss your financial situation with a friend or family member, or use a more private approach and search the internet, but sometimes these avenues can lead to advice that is not technically correct, not based on actual experience or is based on a situation that is entirely different from your own. Accredited non-profit credit counselling agencies provide individual financial counselling, seminars to improve your financial literacy and, in some cases, debt management programs to obtain relief from debt. If you are feeling overwhelmed by debt, you may also consider consulting with a Chartered Insolvency and Restructuring Professional (CIRP). A CIRP-designated Licensed Insolvency Trustee is the only debt professional in Canada licensed by the federal government to undertake insolvency proceedings such as consumer proposals and bankruptcies. Most CIRPs will conduct a free, no-obligation assessment of your financial situation and provide an objective summary of your options to obtain debt relief. CIRPs are also qualified debt counsellors with significant experience in reviewing household finances and budgets. As well, a Certified Financial Planner (CFP) can help you create a long-term saving and investment strategy while also assisting with more immediate needs such as creating a budget.

Creating a budget, tracking and adjusting expenses where necessary, and creating an emergency fund for unexpected events are all strategies that should help to relieve your financial stress over time. Surround yourself with people who will support your financial goals and do not hesitate to seek professional advice when needed.

Need help creating a budget or dealing with financial stress? All Manitobans can access Manitoba Blue Cross's counselling services for support related to finances, debt and more. Regardless of whether or not you have coverage with Manitoba Blue Cross, you can find the available support that's right for you here. (Sign in to mybluecross® to confirm your coverage with Manitoba Blue Cross.)