The new year is a time of new beginnings. Many of us make resolutions to live more healthily, fix up our relationships and get our finances in order.
While we can’t help you lose weight or improve your love life, we’d be happy to offer you eight suggestions so that you can get a better handle on your financial affairs.
1. Make a Budget
While this may seem obvious, you would be surprised by how many people navigate the tricky waters of personal finance without a compass or map. So it’s simple: Set a budget and then stick to it – or at least try like the Dickens.
It will obviously take willpower to live within your means, but you can make it easier on yourself if you set a realistic budget. Don’t just pull numbers out of the air. Look at your income, examine your expenses – perhaps pulling together a worksheet of your bank and credit card expenses for three months – and then set a budget accordingly. Think of giving yourself a fixed weekly or monthly allowance for discretionary expenses, such as shopping, eating out and entertainment.
2. Save Automatically
Set up an automated savings and bill payment program through your financial institution. Each month, on a certain date, you’ll have an amount transferred automatically for retirement savings, a future down-payment on a home, savings for a rainy day, utility payments and so on. Because the funds are drawn straight from your account, you are more likely to stick to the payment regimen.
Yes, we know some people don’t seem to have any extra money available for “savings.” But even if it is only $1 a week, it can be the thin edge of the wedge – to be increased later to $2 or $5 or even $10 or more. You have to start somewhere, so try to make this a part of your budget.
Another great way to save automatically is through a payroll deduction. Talk to your employer about this.
3. Prioritize Your Debts
Not all debts are created equal. Make a list of your debts. Pay off the ones with the highest interest rates (most likely your credit cards) first. There’s no point in investing money if you are continually carrying credit balances at high interest rates. If you have savings bonds or cash holdings, you should use these to pay off debt. You can also see if you are able to refinance your debts or negotiate lower rates.
4. Close Accounts You Don’t Need
Banks and financial institutions charge for everything you can imagine. So do you need several chequing and credit card accounts? The answer is usually no. Bite the bullet and simplify your life at the same time.
5. Have the Talk
Canadians hate talking about money matters. It’s a fraught subject that has sunk marriages and destroyed relationships. But hiding your head in the sand doesn’t help. The behaviours that lead to debt and financial problems won’t change unless they are brought into the open and discussed in a constructive manner. Try the pronoun “we” or “our” instead of “me” or “you.” The discussion with your partner or other family members will usually be more productive.
Parents should also have financial discussions with their children, especially if the kids are poised to leave for university or begin their working lives.
6. Build an Emergency Fund
Things happen that can impede your ability to earn. You may lose a job or become incapacitated by illness. So, of course, check your insurance to make sure that you have adequate life, disability, home and auto insurance. But you should also build up an emergency fund, with three to six months worth of living expenses . . . just in case.
7. Leverage the Investment in Yourself
If you need more money, why not convert your untapped expertise or interests to create another revenue stream? Perhaps you can do freelance work or act as a professional coach. Or if you have have collected a lot of stuff over time, sell it on eBay or through Kijii. If you have the chance to take courses or seminars to upgrade your working qualifications, do so and you may be able to command a higher salary. Sometimes your employer can help you fund such upgrades.
8. Keep a Record of Your Small, Out-of-Pocket Expenses
One of the unseen things that tends to hold us back in achieving budgetary goals is the money we spend without thinking – the Timmy expenditures. Ask yourself every night: “How much did I spend out of my pocket today?” This only includes those things we don’t give much thought to, such as coffee or cigarettes. It will astound you how much this adds up to over a week or a month. Write down these little money suckers each night.
So whatever you need do to get a handle on your financial situation, don’t put it off. Just do it, as Nike likes to say. Just writing things down will give you a far greater chance to control and build your financial security. And you can do it.