Financial literacy is a simple, yet complex concept. The paradox comes from the notion that the practice of money management is theoretically easy to implement, but difficult to exercise and maintain consistently over long periods of time.
That said though, it is critical to achieving financial stability and not being caught unawares if you are faced with a sudden, large expenditure. In 2019, it was reported that Canadian households carried a cumulative $2.16 trillion in debt, which equated to just over 100% of Gross Domestic Product. To put that in perspective, the average Canadian owes more than he/she makes in income in a year. These are truly alarming statistics as a country. However, managing your finances does not have to be done by a professional. By implementing some or all of these tips presented below, you can ensure that your bank account wears a health look year in and year out.
Segregate between needs and wants
This sounds simple, but the lines get blurred far too often here. Your needs are household essentials such as food, water, toiletries etc. Your wants don’t just have to be luxury items. They can even be the small coffee and bagel you indulge yourself in every morning. Remember that having wants is not a bad thing. It is when those wants spiral out of control and start becoming needs that people land in trouble. By having a clear segregation, you are acknowledging what you truly need and can afford to cut back if a financial situation gets tight.
Track your cash flows, not just your salary
Most countries have taxes in place wherein citizens in the labour force have to pay income tax on their salary. Taxes do take away from your salary though, so if you are making $52,000 a year, that is approximately $1,000 a week. After taxes though, you could be left with closer to $700 - $800 depending on the province you live in. Ensuring that you are aware of this and have accounted for it in your budget is essential to not overstretching yourself on an artificially inflated income amount.
Build a Budget
Every successful business has a budget that is made at the start of each year. This budget almost never turns out to be exactly accurate, but that is okay! It essentially functions as a framework for you to measure your inflows against your outflows, and make sure that you are ending net positive. Too often, people without budgets realize that they have spent more than they have made in a particular month, which leaves them scrambling to make rent or other such payments due at the beginning of the month. By making and following the budget (with reasonable disciple), you can track your cash far better and ensure you have enough to cover your short-term obligations.
Start saving early
By initiating strong financial habits early, you set yourself up for financial stability early as well. One of the strongest endorsements of the value of compounding came from Warren Buffett, the famed investor who rose to become a billionaire by investing in the stock market. It’s simple math, really. A dollar that has been in even a savings account earning 1.5% for 20 years is better than a dollar earning 5% for only 5 years. This just goes to show that even if you are ultra-conservative and risk-averse, you can still grow your money faster over time than someone who is willing to take risks, but invests later in their life.
Take stock of your debts
Poor expense control is certainly the major component of poor financial management. However, when debt gets thrown into the mix, the situation escalates to another level as now, you have amounts owing to lenders. Let’s be clear from the outset: debt by itself is not detrimental. In fact, it may even be helpful. In the case of a mortgage for example, you are paying down debts to build equity over time. The same cannot be said of a credit card bill. Credit card points and cashback rewards aside, you have to pay up to 23% on credit card debts that are past their overdue date. But there are debt management ideas that can and should be capitalized on. If you have multiple credit card bills outstanding for example, you can take out a debt consolidation loan where you rollover all your credit card bills into one personal loan and pay a lower rate than the 23% you pay to your credit card provider.
Don’t leave money on the table
If you are a corporate employee, you often have access to a multitude of incentives, benefits and programs that you should be taking advantage. These include group pension plans, matching programs, health benefits, and flexible spending accounts that enable you to cut back your out-of-pocket expenses. These initiatives are designed for your benefit as a member of the corporate you work for and if utilized optimally, can make or save you hundreds (if not thousands) a year.
Bargains and Negotiations
That nice sweater you have been eyeing will probably go on sale if you wait a couple weeks. By hunting for bargains, sales and discounts, you can start saving those little items that ultimately add up to a lot by the end of the year. There are also several online or mobile apps that provide you with incentives and promo discounts. By downloading these and applying them, you may even save yourself the wait for the next sale!
Notwithstanding all of the above tips though, there are times when you may run into financial trouble. In cases of urgent financial need, emotions may sometimes run high and cause you to make a decision that may not be in your best long-term interests. At this time, a trustworthy lender such as Magical Credit can be of assistance in providing you with the financing you need at fair rates and with transparent processes. Ensure that you evaluate all options and select the financial partner that puts you first.