November is Financial Literacy Month (FLM) in Canada and a great time for you to sit back and assess your financial situation. This year's theme is "Take charge of your finances." Whether you want to start right now or prefer to leave it for your New Year's resolutions, here are 10 money management tips that will help you improve your financial situation.
10 Tips to Help You Take Charge of Your Finances
Financial Literacy Month (FLM) was originally launched in 2011 and aims to help Canadians:
- manage money and debt wisely
- save for the future, and
- understand their financial rights and responsibilities
Throughout the month of November, organizations and agencies across the country will be helping Canadians take an active approach to manage their personal finances. And here are my 10 tips to help you do just that!
1. Understand Your Finances
Start by diagnosing your financial condition. How are you doing financially? Deep in debt? Not saving enough for the future? No retirement nest egg?
In order to turn your finances around, you need to know where you stand currently and where you plan to go from here.
Once you have this figured out, set specific and realistic financial goals you want to reach in the next 1, 3, 6, or 12 months or longer. Create-a-Budget-That-Works
2. Create a Budget That Works
Track your spending and income. You can do this manually using a piece of paper or Excel, or use a free budgeting app like Mint.
Find the gap between your monthly income and spending. Do you have money left to put towards savings or to pay off debt?
Create a monthly budget that details how much money you will spend, what you will spend on, and how much will go towards debt repayment or savings. You may need to cut out some of your discretionary spending (wants) so that your entire monthly salary is not eaten up by expenses.
Give your budget some breathing room for unexpected bills and more importantly, be determined to stick to your budget.
3. Build an Emergency Fund
An emergency fund can save you from needing to rely on high-interest debt, like cash advances or payday loans if you get into a pinch and need money fast.
The general advice is to save up 3-6 months of your expenses inside a savings account that you can easily access if disaster strikes.
Even if you are really hard up and can't save up potentially tens of thousands of dollars right now, personal finance gurus like Dave Ramsey advise you to start with at least $1,000 in emergency funds.
4. Trim Your Expenses
You may need to cut your monthly expenses and adopt some frugal habits for your budget to work.
Start with examining your "wants" as opposed to "needs." For example, do you really need to eat out three times a day, and do you watch all the TV channels on your current cable subscription plan?
Here are some ways to save more money every month:
- Cut cable, choose a cheaper plan, or negotiate a lower rate. The same goes for your phone bill and home insurance.
- Pack your lunch, make your own coffee, and eat out less.
- Try the no-spend challenge several times a year.
- Buy generic products or shop at thrift stores.
- Use your dryer, clothes washer, and dishwasher efficiently to cut water and energy costs.
- Pay off high-interest debt first.
- Bike, walk, carpool, or take public transportation.
- Get a free chequing account.
- Stop smoking.
5. Improve Your Credit Score
A credit score is used by lenders to assess your creditworthiness and how likely it is that you will pay back the money you owe.
A poor credit score means that financial institutions will either not lend you money or they may do so at ridiculously high rates. On the other hand, an excellent credit score means you can qualify for competitive rates and pay less in fees.
It is easy to obtain your free credit score in Canada and you can also request a free credit report once annually from the two main credit bureaus: TransUnion and Equifax.
One strategy for improving your credit score is to pay your bills on time to avoid late payment penalties. Also, routinely scan your credit report for any errors that may negatively impact your credit score.
6. Fast Track Your Debt Repayment
Prioritize paying off high-interest debt (such as payday loans and credit card debt) as soon as possible.
This is important because of compounding interest. While compounding interest can make your investment grow exponentially over time, the same is also true of debt.
The longer your credit card balance stays unpaid, the harder it is to become debt-free since the interest fees just keep piling up...on top of your principal debt.
Direct any extra monies that come your way (e.g. from a bonus, side gig, tax refund, or gifts) to paying off debt.
In some cases, it may make sense to focus on paying off your lowest debt balance first, even if it's not your highest-interest debt. This strategy is helpful if you are struggling to gain confidence and gather momentum with paying down debt.
Do whatever works for you as long as it helps you become debt-free sooner rather than later.
7. Maximize Your Savings
Keep your emergency funds and other savings in a savings account that actually pays you 'real' interest. By real interest, I mean that it offers you an interest rate that exceeds the prevailing inflation rate and results in a positive return on your money.
Don't let your loyalty to your bank get in the way. Shop for the best high-interest savings rates available, including those offered by online-only banks.
While you are at it, automate your savings using a pre-authorized savings plan so you don't have to rely on your memory.
8. Earn Cash Back With Free Apps
Take advantage of free money when it's available.
One strategy I have used to cut my grocery bill and save on shopping is by using free cash back apps you can download on your iPhone or Android device.
Two popular ones in Canada are Checkout 51 and Rakuten (formerly known as Ebates).
Checkout 51 is a grocery app that offers weekly cash back on the everyday grocery items you purchase. Ebates is a more general shopping app that offers cash back opportunities at more than 750 retailers in Canada.
9. Start Investing For The Future
The best time to start investing was yesterday. You should pay off debt, build up emergency savings, and then start investing for your future.
Use tax-free or tax-deferred accounts like a TFSA and RRSP to give your investments a boost.
If your employer offers to match your contributions to a pension plan or group RRSP, make sure to maximize the opportunity. Not doing so means you are leaving money on the table.
Even if you only have small sums of money to invest, go for it. There are spare-change investing apps that can round up your purchases to the nearest dollar and invest the difference in a low-cost ETF portfolio.
10. Increase Your Income
There is only so much you can do to cut your expenses without making your life miserable. One solution to this problem is to increase your income!
Take on an extra shift, find part-time work, or start a side hustle to increase your monthly cash flow.
The additional income you earn will help you pay off debt quicker and reach your financial goals.
Enoch Omololu is a veterinarian by day and personal finance blogger by night at Savvy New Canadians. Enoch has a passion for helping others win with their finances and his writing has been featured or quoted in The Globe and Mail, Toronto Star, MSN Money, Financial Post, The Motley Fool, and many other personal finance publications.