As the credit system continues to evolve in Canada, consumers are getting increasingly confused with a greater variety of credit products from a greater variety of financial institutions. In fact, the average Canadian gets more correspondence from financial institutions than they do from family and friends combined (what have we come to?). Just to complicate matters worse, institutions are granting credit to consumers at a pace never seen before.

The combination of increasingly sophisticated marketing techniques to consumers coupled with more and more available credit truly becomes too much temptation for many people to bear. Consumer debt is major crisis in North America. The concept of "keeping up with "The Jones'" has destroyed both people's financial health and their personal lives. What I am here to tell you is that you don't need to fall into this trap! What I am going to show you are some simple guidelines that will prevent you from becoming yet another consumer credit victim.

1) Control spending by knowing exactly where ever dollar spent goes. Tracking your spending habits in detail periodically will enlighten you in ways that you never considered. While doing this on a monthly basis is not realistic. Try to do this in detail for at least one month a year. (Helpful tip: if you and your spouse spend $3 per day on coffee this then totals $1095 per year. Depending on your tax bracket this amount could represent over $2000 in pre-tax income - is the coffee at your office that bad?)

2) Watch your liquidity closely. Liquidity refers to you or your families ability to pay its short-term debt obligations. Watching what available funds you have to pay upcoming debt obligations is fundamental to avoiding credit problems. (Helpful tip: think carefully about purchase programs that require no payments for a set period. If you can't afford to pay it now - should you really buy it)

3) Plan, plan, plan - live and die by a budget. Develop a realistic budget and live by it always. Be sure to take into account all of your payments including loans, utilities, dry cleaning etc. If you pay for it monthly it should be allocated in your budget - you can't be too detailed. Most financially successful people are excellent financial planners. They have investment plans, loan repayment plans, and a clear idea of how much time they need before they can purchase expensive consumer items. (Helpful tip: Also be sure to budget for some kind of treat on periodic basis. Budgets without a treat allowance often result in failure.) While these rules seem fairly simple, they are a little like a diet - easy to start but tough to follow through. Despite popular opinion, material items will not bring you happiness. While it may not seem like it today, forgoing that purchase to save for your child's education (or your retirement) may make you feel a lot better in the long run (despite what the marketers for Big Bertha and Chanel may lead you to believe).

_{This Article originally published in "New Homes and Condos - GTA" in the Jun 23, 2003 - Jul 21, 2003 issue.}

Calum Ross is one of Canada’s top ranked mortgage advisors. He has appeared on Canada AM, Investment Television, Report on Business Television, City TV, is an industry speaker and mortgage columnist. He holds both a B.Comm and MBA in Finance.