Mastering money skills is essential for long and short-term financial success. Knowing how to manage your finances allows you to make informed decisions while navigating life's challenges. From budgeting and saving to investing and debt management, money management skills set you on a path to financial success.
These essential skills, actionable tips, and strategies are a great starting point on your journey to financial independence. Take control of your finances with confidence and achieve financial independence.
Facts about money in Canada
Canadian household debt refers to the total credit liabilities of people living in a house. This debt includes outstanding mortgage and non-mortgage balances.
In May 2023, this debt reached an all-time high of nearly $2.9 trillion. This placed Canada with the highest household debt among G7 countries.
In 2022, 35% of Canadians struggled financially, and 26% couldn't pay a $500 unexpected expense.
Canadians are heavily indebted. Canadians had $1.85 in debt for every $1 of their disposable income in the first half of this year.
None of the above is good news to be excited about, nor is it sustainable. As such, we all must regularly revisit our finances to ensure we're on track to a stable and secure financial future.
Budgeting and creating a financial plan
If you've read other articles on our site, you will know that we regularly revisit our simple budget formula. It is as follows:
Money coming in – money going out = how much you have available to save, invest, or spend
Track your income sources, subtract regular and expected irregular expenses, and utilize what remains. And by using, we mean to save, invest, or put towards your credit balances.
How much a monthly budget will teach you about your finances is amazing. Some outcomes will be obvious and expected, such as a line of credit's interest eating away at your income. Others will be less obvious, such as how much you could save if you bundled utilities.
But your first step is creating a budget, even with a pencil and paper. And remember, you can update a budget every month because it is a living document.
Setting financial goals
Financial goals are important because they give you something to work towards. These goals can be short-term and long-term, big and small.
When setting a financial goal, determine the amount needed to achieve the goal. For example, that goal could be a new pair of ice skates costing $450.
Now, break down the goal into smaller and more manageable steps. Your steps may be saving $45 per month for ten months or $90 per month for five months. Both plans are realistic ways to achieve your goal of saving $450 for the new skates. But it might take some frugal living on your part.
The key to financial goals is keeping them realistic. Setting unrealistic goals may make you feel down when you do not reach them.
Saving, investing, and growing wealth
Mastering your money skills includes the fun parts of saving, investing, and growing your wealth. But before you do any of that, you need to save an emergency fund.
An emergency fund covers unexpected expenses for you and your family. Ideally, you will want to save 3-6 months' worth of living expenses in a separate and easily accessible savings account. Do not try to keep an emergency fund in your regular spending account.
Investing for long-term growth
Yay! So now you have an emergency fund sitting in a High-Intest Savings Account (HISA). It is time to invest in your future.
Most banks have professional advisors you can speak to for free. They want to teach you about investments and also encourage you to invest in some of them. Take the time to schedule an appointment with a financial advisor.
Depending on your age, career stage, and living situation, you will want to discuss the following:
- Registered Retirement Savings Plans (RRSPs, for retirement savings)
- Registered Education Savings Plans (RESPs)
- Registered Disability Savings Plans (RDSPs, available to Canadians with disabilities)
- Tax-Free Savings Accounts (TFSAs, for tax-free capital gains)
- First-Home Savings Accounts (FHSAs, for those who are saving for their first home)
We know that is a lot. However, RRSPs, RESPs, and TFSAs are the most common investment accounts. Using these accounts, you can invest in stocks, bonds, mutual funds, and more. Depending on your risk appetite, a financial advisor will advise you on the best investments.
For a fee, investment professionals can handle your investments for you. Remember to review and rebalance your investment portfolio regularly.
Debt management to minimize your financial burden
There is good and bad debt. Good debt includes mortgages, student loans, and other term loans. Bad debt includes high-interest credit card debt, retail card debt, and payday loans. It would be best if you minimized high-interest debt whenever possible.
Creating a repayment plan
Creating a debt repayment plan is an integral part of mastering money skills. It is also similar to creating a budget.
There are numerous ways to go about paying off your debt. But, the most straightforward way is to list your debts from the highest interest rate to the lowest. Then, pay off the debts with the highest interest rates first. This strategy will save you significant interest payments in the long run.
Make minimum payments on your other debts when carrying out your repayment plan. And also make consistent payments and avoid accumulating more debt.
If you're having issues with paying off your debt, contact a debt management plan professional. They will work with you to determine your debt, negotiate with your credit, and implement a proper repayment plan.
Financial Education: Continuous Learning
Readers are leaders.
Read books, attend workshops and seminars, and find professional advice. We cannot stress this enough. So many personal finance resources are available to Canadians, including extensive literature from the Government of Canada.
Youtube and financial blogs like Creditpicks are also great options for additional financial education. But be careful who you take advice from; not every website has your best interests in mind. Creditpicks' sources are the Government of Canada, Canadian academics, and reputable news sources. We cite all of our sources in every article.
Mastering money skills is the only way you will find financial freedom. Having practical money skills and a money mindset will lead to wealth accumulation. You may need a side hustle or a way to earn passive income. Whether dog walking, real estate investing, or affiliate marketing in your spare time, making extra cash means meeting your goals sooner.
Budgeting, creating a financial plan, and setting goals will give you focus. An emergency fund will save you from a catastrophe. And a debt repayment plan will ensure you save money on interest while maintaining an excellent credit score.