By: Sylvia Lim, CGA, 

Special to the Province March 8, 2009

The economic downturn has left many Canadians with mounting personal debt and credit problems.

The numbers are grim: Canada's jobless rate rose to 7.2 per cent in January and Canadians' debt-to-disposable income ratio has reached a whopping 130 per cent, according to Statistics Canada.

Outstanding credit card balances soared 40 per cent from 2004 to 2008, according to Deloitte & Touche. Delinquent credit-card payments —those that are late by 90 days or more—have also risen.

What can a person do to head off a personal financial crisis?

The answer—it sounds simple, but a surprising number of people never get around to it—is to plan ahead and create a personal budget. Canadians can't control the recession, but they can assert more control over their personal finances.

"I used to live from paycheque to paycheque," said Tanya Howe of Lethbridge, Alberta.

"But then I started paying a set amount onto my student loan every month—higher than required—because I didn't want to keep paying it off for years."

Just as Howe decided which debt to pay off and when, the starting point for any budget should be to define your personal financial goals.

First, decide whether you are paying off a debt, saving, or just planning your expenditures to get through the month. Individual goals should be written down so that they are considered rationally and taken seriously.

Each goal should be realistic and measurable so that you don't set yourself up to fail.

A realistic goal might be saving $2,000 for a down payment on a car within one year, or paying off $7,000 worth of student loans within three years.

These are good goals because they're realistic, specify a dollar target and set a reasonable period for completion.

However, it is fruitless to try to pay off $10,000 worth of credit- card debt in one year if the debtor's take-home pay for that same year is only $25,000. If it took a few years to accumulate the debt, it is realistic to allow a few years to pay it off.

Once goals are set, you should revisit them each week or month and track your progress.

Whatever your reasons for wanting to take more control of your money, the rules are the same: Know where you stand financially, where you would like to end up, and how you will get there. In other words, be prepared by planning ahead with a budget.

"Who knows what could happen five or 10 years from now? I'd rather pay off my debt and make a plan now in case I need money later," Howe said.

Sylvia Lim, CGA, is a Vancouver-based financial planner and the author of Personal Budgeting Kit (Self-Counsel Press). Visit  www.sylvialim.com for more on personal budgeting.