Nearly every article you read on the internet about managing finances starts with a similar introduction. “Managing your money can be daunting for many Canadians, but it doesn’t have to be.”
Anything involving money shouldn’t be “daunting.” We overvalue what money means, thus creating the anxiety of managing it. Let go of any limiting beliefs about money.
Now for the fun part: With just a few tips (not tricks—tricks don’t work with money), you can make the most of your hard-earned dollars. We explore some of these tips here.
How do I manage my finances?
Properly managing finances requires focus, discipline, and, in some cases, patience. How much you earn is irrelevant. Anyone can sit down, figure out their financial situation, and develop a plan to enhance their financial well-being.
Our plan for managing finances includes the following steps:
- Creating and tracking a budget
- Opening appropriate accounts
- Setting financial goals
- Saving and investing for retirement
- Building an emergency fund
- Paying off debt
- Developing good credit habits
- Diversifying your investment portfolio, e.g., eggs across multiple baskets, not just one
Financial health is a major part of your overall wellness. By managing your finances effectively, you can reduce stress and have more time and resources for activities you enjoy. The following money management tips will assist you in organizing and accomplishing your objectives.
Create a budget and track your spending
Managing finances starts with grabbing a pen and a piece of paper. Your first step to freedom is the following simple math:
Everything you earn – everything you spend = how much you save, put aside for an emergency, or invest for the future
Many financial blogs complicate this simple step. You don’t need a Master of Business Administration (MBA) to be a budgeting expert. The goal is to have money left over after the “everything you earn – everything you spend” part. You then split the leftovers between various savings and investments.
Regularly review and update your budget
You should review your budget monthly. Adjust it to your goals. If you’re not the pen-and-paper type, move your budget to an Excel worksheet or use an app.
But, the first time you budget, use a pen and paper. It is the most basic yet effective way to quickly see where you stand financially.
Open a good savings account
Maximize your savings. Chat with your bank about a High-Interest Savings Account (HISA). If your bank doesn’t offer a HISA, find another bank.
Current HISA offers can range from 1.50%-5.25%. At the highest end, this means that for every $100 in your bank account, you will earn $5.25 per year.
For every $10,000, you’ll earn $525 per year. For every $100,000, you’ll earn $5250 per year. It is as simple as that.
Understand potential HISA limits and liquidity
Any bank you open a HISA with will likely have deposit limits in the $100,000-$300,000 range. Possibly lower. But this is passive earning if you want to keep some liquid (immediately available) cash around.
Set financial goals
Renovate your kitchen. Revamp your wardrobe. Buy a boat or an ATV. Setting goals is an important part of managing finances.
Whether long-term or short-term, goals keep you focused and motivated.
You should have a mix of both goal types; rewarding yourself along the way to a longer-term goal is not a bad thing. But ensure your goals are realistic and attainable.
Save for retirement
Investing for your retirement is paramount when managing finances. You do not want to spend your later years living on next to nothing.
Canada has some excellent retirement investing and savings accounts to choose from. You can use one or a combination of all of them. These individual retirement accounts include:
- Registered Retirement Savings Plans (RRSPs)
- Registered Disability Saving Plans (RDSPs)
- Tax-Free Savings Accounts (TFSAs)
- First Home Savings Accounts (FHSAs—these aren’t really for retirement, but you can use one to save money by making tax-free investments while saving for your first home)
- Employer-sponsored pension plans
Make the time to speak with a financial professional such as an accountant, Certified Financial Planner (CFP), Chartered Investment Manager (CIM), or Registered Financial Planner (RFP). If you haven’t done so already, start saving immediately for your retirement plan. This long-term financial security is critical.
Build an emergency fund
Life can go sideways sometimes. It is a matter of fact. And being ready for such events is essential to managing finances. You can use the HISA for this purpose.
Open a separate bank account just for this purpose, label it your “Emergency Fund,” and make monthly contributions to it—no matter how small.
If you can, open a credit card with no annual fee as a backup to your emergency fund. This card should remain “on ice” for emergencies only. This means that you don’t have it in your bag or wallet, and you don’t use it for anything but an emergency. Do not be left scrambling to find a loan during an emergency.
How much money should you have in an emergency fund?
Your emergency fund savings goal depends on the life you want to live if you experience a significant life event such as losing your job. Popular finance culture says you should have at least six months of monthly expenses as a cash reserve. But we all know that isn’t always possible, so 2-3 months of essential expenses should suffice.
Pay off your debt
The budget you created should include paying down your debt. There are numerous strategies to become debt-free. But our favourites are paying off your highest interest rate debt first or paying off the smallest through the largest debts.
Whichever you choose, stick with that one strategy. Do not combine or switch between them.
When paying down debt as a part of managing finances, always try to pay more than the minimum payment. You can also explore debt consolidation or working with a professional debt-relief company. Whatever your situation, you are not alone. If you need assistance, contact us, and we will connect you with a credible and reputed professional.
Develop good credit habits
You should protect your credit score like the cash in your bank account. Your credit score plays a significant role in your day-to-day life in Canada. Whether you’re trying to rent a home, get a mortgage, or even apply for a security-cleared job, your credit will be checked throughout your life. You always want to maintain a credit score of 720 or higher (750 or more is preferred).
Need to check your credit? You can do that through Creditpicks’ partnership with TransUnion®. Subscribe to our monthly newsletter, and you’ll receive an email with an access code for TransUnion® CreditView for one full year. You can also download our free new Your Personal Finance Guide 2023-2024 e-book.
You can sign up using our “Explore” main menu. Be sure to set up 24/7/365 credit monitoring so you receive alerts when your credit report changes.
Diversify your investment portfolio
A diverse portfolio that serves your interests while hedging risk is essential. No two investors are alike; everyone has a different view of what they want to invest in, whether the motivation be money (usually number one), social responsibility, environmental factors, or otherwise.
Whether you decide to invest through a firm or independently, first speak with an investment professional to understand the market and its short-term and long-term forecasts.
How much you earn is irrelevant. Anyone can sit down, figure out their financial situation, and develop a plan to enhance their financial well-being.
Most other site will say that managing finances “can be fun.” These sites have it wrong. Managing finances is fun.
Few things are better than money in your bank account, a low debt, and growing investments. An emergency fund gives you options and will limit your stress.
These are our mid-year financial tips. You can start changing your financial status today. Stay committed to your goals. You will have financial security and a brighter future if you attain them.