5 ways to get your finances in order

Did you know that November is Financial Literacy Month? Don’t worry if you haven’t, it’s not exactly the most interesting topic, but the government wants to keep you informed since rising debt levels is a real concern for Canadians.

One main issue with financial literacy is that there are many people who don’t know where to begin. Getting your money in order isn’t an easy task so how do you get on track if you have different priorities or goals without being intimidated by the process? You might be surprised to learn that taking control of your finances is easy and you won’t need to make many sacrifices. Here are five ways you can get your finances in order right now.

Make a budget

Some people don’t believe in budgets, but there’s no way you can get ahead if you’re just winging it. Making a budget is easy but it requires a little bit of work to start. What you want to do is track all your expenses for a month or two first. I mean literally write down or log everything you spend money on (from that protein shake to your internet subscription). To create your budget, start with your income, and then subtract any fixed expenses. Now prioritize any savings goals such as vacations, retirement savings, your child’s RESP, etc. before considering any discretionary spending.

Since you tracked where your money is going, you can make adjustments to your spending habits to prioritize the things that matter the most to you and your family. E.g. cut back on eating out so you can increase your home down payment. Budgets can change on a monthly basis (especially when those once a year expenses come up) so don’t feel too bad if you’re not always on track. Make adjustments as needed until you find what works for you.

Pay yourself first

Even though many people have some saving goals in place, they often don’t have any money to put aside once all the bills are paid. But now that you have a budget in place, you can do something simple that will help you reach your goals – pay yourself first. Set up some automatic withdrawals that will transfer money to your savings account as soon as you get paid. It may be difficult to adjust at the start, but since the money will be gone right away, you won’t even miss it. Remember, this money isn’t actually gone, you’ve just paid yourself first.

Pay off any debt

If you have any outstanding consumer debt such as credit cards, car financing or even student debt, it can be difficult to get ahead. Quite often we get into the habit of just making the minimum payments, but that would take us years to pay off the entire balance. Plus, we’d pay an insane amount of interest.

Paying off your debt requires discipline so take any extra funds that you may have and apply it towards the debt that has the highest interest rate first. By doing this, you’ll pay less interest in the long run. Once that debt is clear, focus on the next balance. Another strategy is to get a consolidation loan that comes with a lower interest rate. You take the money from that loan and then pay the higher interest debts off right away. Remember, this loan is technically extra money so make sure you’re paying down your debt and not spending more money.

Build an emergency fund

Having an emergency fund in place is vital as you want to protect yourself in the event of a, well, an emergency. I’m talking about things such as a job loss, health issues or emergency car/home repairs. To be clear, a bathroom renovation or a vacation that you “need” do not qualify as emergencies. The idea is to build up 3-6 months’ worth of expenses in cash so you can dip into it when a true emergency comes up. During these situations, you may not be able to work so the money set aside is meant to help pay for any expenses that you may have until you get back onto your feet.

Start investing

If you have all of the above covered, you’ll likely want to make your money start working for you by investing it. Any money that you might need in the next five years should be invested in something safe such as a high interest savings account (HISA) or Guaranteed Investment Certificates (GICs). These types of investments are relatively safe so there’s no real chance that your money will go down in value.

Now, if you’re thinking about your retirement savings which you won’t need for 20-plus years, then you’ll want to invest your money in a diversified portfolio that will help meet your long-term goals. I know that sounds intimidating, but with robo advisors such as Wealthsimple available, you can have a portfolio built for you in minutes. You’re not actually investing with a robot, Wealthsimple simply automates much of the process which benefits you since you’ll pay lower fees compared to other investment services available.

Final thoughts

Many people say they want to get their finances in order but often don’t take any action. By keeping things status quo, you run the risk of falling behind or not meeting your goals. Getting started is easy, but keeping your finances on track will require some maintenance from time to time.

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. As a completely self-taught, do-it-yourself investor with no formal training, he makes money easy to understand for all Canadians. His specialties include personal finance, budget travel, millennial money, credit cards, and trending destinations.

Barry Choi is a paid Sonnet spokesperson.
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