Financial Basics 101: A step-by-step guide

 

Do you ever feel you wish you knew more about money? Knowing how to save money, pay off debt faster and make your money grow builds confidence, reduces stress and builds a solid financial future.

Here is a step-by-step approach to graduating from Financial Basics 101:

  1. Manage spending by preparing a budget

Creating a weekly or monthly budget is one of the most useful exercises you can do because it lets you track what you earn versus what you spend. You can use an online budget calculator or put it all on paper. Either way, it’s important to get all your paperwork together, such as household bills, paystubs, debt payments, contributions to savings or emergency funds, and receipts, so your budget will be as accurate as possible. Once you subtract all your expenses from your income, you’ll see what’s left over. If there isn’t enough, you need to find ways to reduce your expenses and/or increase your earnings.

 

  1. Learn to save money

If you’re like most Canadians, you aren’t saving enough. On average, Canadians are saving just 3.4%  of our annual earnings. Even if it’s just $25 a month, the key is to start some kind of savings plan. The habit will grow and will inspire you to not only stay the course but increase the amount gradually. Once you know what you can afford to save each pay period, set up an automated transfer to go into a savings account so you will be building up savings without even thinking about it.  

 

  1. Learn to manage credit

Once you start earning a regular paycheque and managing your monthly expenses, you can start thinking about borrowing money to pay for the big-ticket items in life. Whether that milestone is a car or a first home, your lender will want to see a credit score to determine how likely you’ll be to repay your loan. Typically, people start building a credit score by getting a credit card and paying all their bills on time. The more types of credit you have (e.g. credit cards, retail accounts, mortgage loans, installment loans), and the longer your good payment history is, the better your credit score will be.

 

  1. Pay off debt

Every day you don’t have a plan to pay off debt means another day of interest paid. Figure out the total, and monthly payment owed on each, and start prioritizing which debts to repay first. Two strategies for paying it off are the avalanche and the snowball. A debt avalanche targets debts with the highest interest rates first. A debt snowball plan has you pay the smallest debt first. If you need short-term victories to inspire you, then opt for the snowball method. If you are patient, you are a debt avalanche candidate.

 

  1. Set financial goals

High achievers in all walks of life have one thing in common: They set goals. When you set financial goals – such as getting out of debt faster, growing retirement savings, saving for a big purchase – it’s easer to keep your focus on the prize. Look at what you want to achieve over time and then put any extra money towards that goal. For example, you could set up a separate account to save for a down payment for a car or home. You could set up automatic withdrawals from your paycheque to go into a fund for unexpected life events like the loss of a job.

  1. Protect yourself from fraud

Fraud is all around us and a few of the typical red flags to watch out for are: personal information requests, overpayment notices, unsolicited friend requests on social media, unsolicited phone calls, or astounding mail offers telling you that you’ve won a large sum of money.

Always confirm the identity of anyone who might contact you, and never send money to anyone who calls or emails you. Also, keep a close eye on your bank and credit cards, going over your statements every month, to make sure no one has accessed your accounts and is using them.

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