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Smart Money: Spring cleaning for your personal finances

WATCH ABOVE: Personal finance experts share their favourite money tips.

Spring is (finally) here and with the change of weather come ambitions of cleaning, gardening, anything to kick the dust off our months-long hibernation.

Why not apply that same attitude to money? Experts are urging Canadians to take advantage of that feeling of rejuvenation in the air by cleaning up their personal finances.

“Financial plans are meant to be dynamic and they need to change as your income and spending change,” said Jeff Schwartz, executive director of Consolidated Credit.

And there’s no denying that Canadians are in need of a change.

“Half of Canadians are living pay cheque to pay cheque — they don’t have savings, they have too much debt, so their pay cheque goes to servicing that debt,” Schwartz told Global News.

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Recent data from credit bureau TransUnion showed just how much Canadians owed in the fourth quarter of 2014.

On average, Canadians owed:

  • $21,428 in non-mortgage debt (+2.3% from Q4 2013)
  • $30,554 in lines of credit (+4.4% from Q4 2013)
  • $22,187 in installment loans (+2.4% from Q4 2013)
  • $3,659 in credit card debt (-2% from Q4 2013)

Canadians are in debt

According to Schwartz, persistently low interest rates and increasing net wealth may be encouraging consumers to spend beyond their means.

Toronto recently joined the ranks of Vancouver with the average price of a detached home in the city hitting $1 million. Statistics Canada said Canadians’ combined assets have soared to $10.2 trillion. But this is happening in concert with record-high consumer debt levels across the country.

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“It’s giving Canadians a false sense of spending power,” said Schwartz. “Your house might be worth a lot, but unless you sell it today and buy a cabin in the woods, you can’t really think of it as a liquid resource.”

There’s no time like the present to re-evaluate your budget and financial plan.

Tips for spring cleaning your finances

Evaluate the damage and fix the problem.

Taking an honest look at your finances is often the hardest step. “Fear of facing the reality of their situation prevents people from taking action,” said Schwartz.

In many cases, a crisis needs to occur before consumers are jolted back into reality, spurring them to take action. “Often that crisis is job loss.”

Don’t wait until the crisis to take a look at your finances, Schwartz urged.

If you had a financial plan in place last year and you set some goals, look at how you did. Last year you set a goal of saving up three months’ worth of expenses for emergency savings. Did you do it? If not, determine why. What were the weaknesses in your plan?

Perhaps your goals were unrealistic given your current income and expenses. Or maybe you were ‘all talk and no action.’ It’s time to zero in and find the exact causes.

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Refocus your goals.

Consolidated Credit said that if your priorities have changed, your budget should reflect that.

WATCH: How do you prioritize your finances?

Perhaps last year your No. 1 goal was to save for a down payment, but then you bought a new car (with a hefty auto loan), and took a fancy vacation (charged it to your credit card). Your main goal this year should be to pay off those debts.

“The number one thing that people need to prioritize is to get rid of high-interest debt,” said Laurie Campbell, CEO of Credit Canada Debt Solutions.

Once your debt is gone, you may want to focus on building up an emergency savings fund that could, ideally, cover six months of expenses should you lose your job or find yourself in a financial emergency.

When focusing your goals, make sure they are SMART, said Schwartz — specific, measurable, attainable, relevant, and time-sensitive.

READ MORE: Tips for paying off your debt and saving for the future

Stop padding the wallets of your creditors.

“We know that 30 per cent of people are only paying the minimum on their credit cards,” said Campbell. “That’s an extremely expensive way of carrying debt.”

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By only making the minimum payment, you end up paying extra in interest charges to already wealthy creditors.

READ MORE: Here’s what happens when only make the minimum payments on your credit cards

Get professional help.

“If you can’t do it yourself, then it makes sense to hire someone who can help you,” said personal finance expert, Preet Banerjee. “That could be a money coach, that could be a financial advisor, that could be someone at your bank – ask for the help, it is out there.”

Financial professionals can help you evaluate your current finances, help you set goals and identify any gaps in your plan.

That said, not all financial professionals are created equal.

Because financial planning isn’t regulated in much of Canada, “financial planners” can vary widely in their training, education, experience and qualification. Click here for tips on choosing a financial advisor.

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