Are you tired of being stuck in a difficult financial situation? There’s no time like the present to start taking steps to fix your financial future.
November is Financial Literacy Month in Canada, which means it’s a great time to share knowledge and resources designed to help people achieve a more stable and secure financial footing. By building new habits, honing skills, and learning important lessons, improved financial literacy can deliver life-changing rewards, particularly for those whose personal finances need improvement.
If you’ve decided now is the right time to take charge of your finances, here’s what you can do to help make it happen.
Begin with a budget
You can’t set your finances straight until you know where your money is going, so the first step of the financial recovery process is creating a budget that tracks your monthly spending against your income, breaking everything down into different significant spending categories such as rent or mortgage, utilities, groceries, insurance, savings, loans, taxes, cell phone and internet, transportation, and entertainment.
Whether it’s with an online app or your own homemade spreadsheet, add up all your expenses and see how the total compares to your earnings. Look for areas, especially discretionary spending such as restaurants, retail, and entertainment, that can be cut down or eliminated. Then try to trim the fat in other areas, looking for efficiencies and avoidable costs and expenditures.
Make a plan to deal with debt
Debt can often feel like a crippling load to anyone carrying it. Once you’ve made a budget and whittled down your spending, the next step is to establish a plan for dealing with any debts that may be holding you back. This could mean consolidating multiple debts into a single loan, or attacking your highest-interest debts first. Consider getting help or advice from your financial institution, or another trusted source, if you’re unsure of the best path.
Don’t forget to pay yourself
Don’t be distressed if your savings situation isn’t so hot. You can start turning that around one small sum at a time. The first step is building up an emergency fund of around $1,000 to help cover unexpected expenses. While getting there from zero might seem hard, it’s easier and more achievable when you think of it as just $20 per week for one year. After that, it’s time to start paying yourself, setting up a schedule to regularly put a small amount of money away and let the power of compounding help your savings grow.
Use credit wisely, and sparingly
Buying on credit can sometimes have a lingering negative effect on an individual’s finances, especially if punitive interest fees enter the equation. While cutting up credit cards is a drastic ploy that deprives the owner of an emergency use option, some carefree spenders choose to reduce their credit limit to an amount more in line with their monthly budget.
If spending is a problem, avoid credit cards and use cash or debit cards instead. This will prevent you from spending beyond your means while also giving you a much more immediate idea of the impact of your spending outflow.
Change your mindset, change your long-term spending habits
For some people, spending is often about acquisition. Unfortunately, buying material goods is often a poor use of personal wealth, with little to no long-term positive impact. Concentrate on trying to change your mindset around spending, away from material consumption and more towards a focus on how each dollar you spend impacts your overall quality of life. It’s a simple, profound way to put all your potential expenditures in a new light. Suddenly, splurging on a new pair of shoes might not seem so sensible anymore, unless they’re truly practical, or perhaps a special indulgence you’ve carefully saved for.