Help clients get on the right road to a sound financial plan
If you’re just starting to organize your finances – whether you’re young or just never had the chance to learn before and need to improve what you’re doing in this time of increasing interest rates and inflation – these five easy tips will set you on the right road to effectively manage your money.
Set your financial goals: The first thing you need to do is set your financial goals.
What would you like your money to accomplish for you over time? There are a lot of personal goals that you can set, such as paying down school debt or eventually buying housing. But there are also essential ones that you need to ensure your long-term financial well-being. You should, for instance, have a fund to save for emergencies and begin to save for retirement because government – or even company – pensions will probably not be enough to afford you a good lifestyle after you quit work.
Take some time to think about what could be important over the course of your life, but also ask your financial advisor what else you should consider for your long-term horizon.
Track your spending: When you’re first setting up your finances, you need to figure out what you spend money on – and how much – so you can establish an accurate budget to help you meet your financial goals.
Once you have established your budget, you should also always track of your spending, so you can see if you’re sticking to your budget, but also check to see if there are any new patterns emerging that you need to adjust your budget for.
Developing this practice also keeps you mindful of what you’re spending where, so you might be a little less tempted to splurge on things that you don’t need and don’t fit your budget, since those are what can cause you get off-track from saving to meet your goals.
You can keep track of your spending in a notebook or day timer, or use one of the many apps now available online or perhaps even your financial institution offers. Try a few styles to see what works best to make it easy to stay on top of your tracking.
Establish a budget: Once you have some idea of what you’re spending, you should:
- add up your monthly expenses – for major things like housing, food, utilities, and transportation, but also items with more discretionary room, like clothing, coffee breaks and lunches, gifts, trips, and “mad” money;
- add up your monthly income, which includes your job salary and any other sources of income that you might have, such as bonuses, tax refunds, government rebates, and even having a “side hustle”, where you earn extra income;
- subtract your expenses from your income to see what you have left to pay your debt, build up your savings and retirement plans, and pursue your other financial goals.
Usually, you find it isn’t as much as you’d like, so you need to look at your monthly expenses to see how you can pare those down or eliminate unnecessary spending and add more margin to meet your key goals.
You should review your budget and spending a few times a year – perhaps every quarter – to see if you’re still on course or have any additional income, expenses, or financial patterns that might cause you to alter your budget and financial goals.
Set up appropriate bank accounts: Once you have all these other pieces in place, you will need to ensure that you’ve set up the right bank accounts. You’ll need chequing and savings accounts to separate your spending from your long-term savings. You’ll also need investment accounts, which could include Registered Retirement Savings Plans, Tax-free Savings Plans, or even Registered Education Savings Plans you have children who will eventually need education funds.
Establish good credit habits: Having a good credit rating or score can impact whether you can rent an apartment or even be considered for some jobs, but it can also impact how much you can borrow for some of your major financial goals, such as pursuing special education or buying a house. So, it’s important for you to:
- pay your bills and credit cards on time: make sure that you use any credit cards you have responsibly – only spending what you can pay off every month, then paying them off monthly so you don’t accrue unnecessary interest or get behind and spoil your credit rating;
- pay off your debt: if you’ve already dug yourself into a financial hole by using too many credit cards or have a large debt from school or other purposes, you should work with your financial advisor to set up a financial repayment plan, and then ensure that you stick to it. If you can make regular monthly payments to get your bill totals down and avoid hitting your credit account limits, you can not only wipe out your debt, but improve your credit history with the fact you make your payments and improve your credit rating.
