Two articles grabbed my attention this morning – one from the National Post (Krugman warns Canada vulnerable to a ‘big deleveraging shock’) and one from the Globe and Mail (Electric wave jolts car parts maker to innovate). One article points to the impeding crash that many speak of with respect to Canadians and their level of debt and the other speaks to good old fashion entrepreneurship and taking advantage of opportunities. For some, paying attention to level of debt in their personal finances or business may not be an issue they focus on each day but there is something to be said about getting out in front of whatever impact will be had once interest rates begin to increase.
In my experience, many small businesses are still working through debt that was on their books as far back as 2008 and 2009. While these businesses have cut expenses and have made significant headway in the repayment of their debt, many still have a long way to go and could use the low interest rate environment for as long as it will last. For individuals and families, I don’t feel the attitude that was prevalent in 2006 and 2007 when the opinion of the day was to use your home as an ATM machine is still prevalent today but I also don’t see that people are working hard to lower their debt levels and could find it tough as interest rates increase.
The article in the Globe and Mail describes a small company in Ontario that focused on improving processes and the way the company designs and manufactures their product but realizes that real growth comes from innovation. In thinking through the examples of individuals and businesses I have come across in the past few years that are doing better than average, I would have to confirm that innovation is key. In personal finance, innovation can look as simple as downloading an app for a iPhone that holds a template grocery list with prices so that when someone is out shopping they are only buying what is on their list and nothing more. Further, innovation between couples to track their spending using the various mobile applications that prompts reminders when budget categories are exhausted or developing savings plans using automatic withdraw programs at their banks are all examples of doing more than being better at only spending what they have. For businesses, innovation is a little bit more tricky. Many companies get nervous to consider new ideas and default to cost cutting, efficiency and streamlining redundancies but fail to recognize that while these tasks are important they are reactive by nature and do not provide large gains towards future profits.
If the end was near in the form of interest rates normalizing to 5% or 7% how ready are you? What things could you be doing now to put yourself in a position for growth while paying down (or paying off) your debt?