Sometimes, it’s good to make sure you’ve got all of your financial bases covered. It can be easy to get caught up in the day-to-day and possibly miss some of the money management basics that will help us out the most in the long run.
Personally and professionally, these top 6 tips will help you make sure you’re setting the foundations for financial success, both at home and at work.
1. Pay off high-interest consumer debt first
The average Canadian owes about $23,000 in non-mortgage consumer debt. High-interest debt, like credit cards and loans, is a slippery slope. The more you have to pay off in interest charges, the less you’ll have to add to your long-term investment assets like Tax-Free Savings Accounts (TFSA) or Registered Retirement Savings Plans (RRSP).
Long story short, high-interest consumer debt is a hole you don’t want to get trapped in. Carrying balances on credit cards and loans can be costly, and most folks paying for it don’t realize how much it’s hurting them.
If you’re carrying any debt with a high-interest rate, typically 19.99% or above, pay this off as soon as possible. It makes less sense to try to contribute to savings or investment accounts while also managing on-going consumer debt. While you may temporarily have less to save and invest by paying off your debt, once it’s paid off you’ll have more (significantly more over-time) to bulk up your savings and investments.
2. Don’t wait for emergencies to build an emergency fund
37% of Canadians don’t have an emergency fund. If you lose your job or experience any kind of temporary financial need, like a home or car repair, an easily accessible saving account is crucial to help prevent you from having to dip into long-term investment accounts like TFSAs or RRSPs – and hopefully keep you from having to pay for the unplanned expense with a high-interest credit card or, even worse, a payday loan.
Lots of people hear the standard advice of building up an emergency fund big enough to cover three to six months of expenses and think “no way.” And that’s fair. Though it’s still solid financial planning to aim for a 6-month emergency fund - and that’s a great goal if you can achieve it - don’t let that big number deter you from saving anything at all.
● Treat contributions to your emergency fund the same as paying off any regular bill, like your mortgage or rent, internet, or insurance.
● Create the habit of regularly adding to it by starting with whatever you can afford. Start with $10 each week and take it from there.
● Set up your emergency fund in a separate savings account or even at a different financial institution, ideally where you won’t see its balance or be tempted to spend from it.
3. Make saving automatic
We’re bad at saving money. It’s a fact. Our brains are hard-wired to value immediate rewards over long-term stability. When we see our paycheque deposited into our accounts or open a new credit card, our desire for immediate gratification, even if we know it will harm us in the end, can be too strong to ignore.
The best way to counteract these tendencies is simply to remove the choice itself. Set up as many automatic savings withdrawals as you can. If you get paid on a regular basis, schedule deposits to your emergency fund, TFSA, or RRSP accounts so that you make your contributions before you see anything in your main chequing account. The less you have to think about it, the better.
4. Make sure you’re on top of top-up programs
Many employers offer financial benefits like RRSP-matching and defined contributions plans. Not only are these easy and automatic ways to encourage you to save, but they’re also basically free money. Despite that, in the last decade, Canadians have passed on billions of dollars in potential extra savings simply by not taking advantage of them.
● Check if your company has any kind of defined contribution plan. Usually, this means they’ll automatically take 2%-6% from your paycheque toward a retirement plan and automatically double your contribution. You always want to max out whatever your employer is offering. If they’ll match up to 6%, make sure you’re contributing 6% to get the most benefit possible.
● You might also have access to other TFSA or savings plan-matching programs in addition to your defined contribution plan. Each employer will be different, so be sure to educate yourself about everything that’s available to you. If you can hook up any type of matched contribution, make sure you’re getting the biggest amount possible.
● Think of these potential contributions like a raise. You probably wouldn’t turn down a 6% boost to your salary if you were offered it. So why would you, essentially, do the same thing by not taking full advantage of top-ups and contribution matching if it’s offered to you?
5. Get the most from Employee Assistance Programs (EAP)
Our financial stability isn’t based solely on what we make and our ability to save. Our financial health is closely tied to our mental health. Our own sense of self-esteem, family history, and past experiences all have a huge impact on our feelings about money and how we’ll manage it in the future.
If you have access to an EAP, they can help you work through the emotions and mental health concerns of a variety of life situations, including debt counselling, retirement planning, and examining your relationship with money. EAPs are not only free for you to use but strictly confidential.
6. Save big from all the little things
It’s easy to focus on major employee benefits and miss out on smaller financial perks. Like with any kind of savings growth, big things can add up, and the more you take advantage of, the more you can add to your own nest egg.
Take the time to go through every single benefit offered to you to make sure you’re not missing out on small perks that could come together to equal significant savings. From gym and fitness discounts to meal delivery and other wellbeing offers that sometimes get hidden underneath the big-ticket items, a little effort to see everything you’re entitled to can pay off with additional, unexpected savings in the end.
Jeremy Elder is a Toronto-based content marketer and copywriter with over a decade’s experience telling stories for some of the world’s biggest brands. He’s an expert at finding WiFi wherever you least expect it.
Jeremy Elder is a paid Sonnet spokesperson.