Most of us know the importance of physical wellness, but financial health habits also play a vital role in living your best life. From creating a balanced budget to saving enough for your “golden years,” having the right money habits today lays the foundation for a solid financial future tomorrow. Read on for our seven healthiest money moves:
1. Make a budget
Before running the marathon, start with getting in shape.
The first step to healthy finances is to create a budget—a spending plan that aims to balance your income and expenses over a specified period of time. The process involves tracking your cash flow, scrutinizing your spending habits, and deciding how to allocate your money.
A good method for budgeting beginners is the 50:30:20 budget rule. How it works: Set aside 50% of your after-tax income for essentials (housing, food, transportation, daycare, etc.), 30% to your “wants” (entertainment, clothing, electronics, travel, etc.), and 20% to savings/debt repayment.
If you’ve never created a budget, get started with the Coast Capital Savings online budget calculator. Just fill out the questionnaire and then the online tool will do the math, giving you a recommended budget breakdown. If you still have questions, set up a Where You’re At Money Chat™ with a financial expert to help you with the results.
Once you’ve got a budget in place, it will empower you to spend within your means, eliminate debt, and save towards the future.
2. Set up auto-payments
Practice preventative medicine and stay one step ahead.
Ever bounced a cheque or forgot to pay a bill? There’s a penalty for that. However, these common money mishaps can be prevented simply by automating your finances. Start by setting up direct payroll deposits so that your paycheque automatically lands in your bank account. Next, set up pre-authorized debits for recurring bills—meaning that external payees for your mortgage, mobile phone, cable, utilities, and so forth, routinely get paid monthly directly from your chequing account. With this preemptive hack, you won’t miss a payment again.
3. Pay yourself first
Put on your own oxygen mask first, then assist others.
Many savvy savers swear by one rule: Automate your own savings first. This involves scheduling a regular transfer from your chequing account to your savings account after each payday. Automating removes the emotion from saving—you don’t have to remember to do it or spend time second-guessing the decision. The concept of “forced saving” means you’re always putting your financial goals first so you are in good shape to, say, travel, start a family, or send your kids to college if you so desire.
4. Organize your finances
Work to declutter your mind, so you can think more clearly.
These days, everyone is tidying up their homes to spark joy. The same rule applies to personal finance: If your bank accounts are a mess, how can you thrive financially?
One smart technique is to open multiple chequing and/or savings accounts for different purposes. For instance, designate one for property taxes, another for emergencies, another for fixed expenses. Or, try an approach that follows the 50:30:20 method: Open three accounts (needs, wants, and savings/debt repayment) and deposit a percentage (50%, 30%, 20%) from every paycheque. Then, just withdraw from the appropriate account when you need to make a payment.
But you also need to be realistic about your spending. If you’re a fashion lover, it may be more important to create a side account for clothing purchases. The same goes for foodies—if you love dining out, an account just for restaurant outings can keep you from breaking the bank. It’s like having money jars that you can dip into guilt-free, while staying on budget.
5. Use your cash in hand
Splurging can be a healthy diversion, but don’t bite off more than you can chew.
It’s no secret that Canadians love using credit. Statistics Canada reports that 79.6 million credit cards were issued in Canada in 2018. But relying on credit is a slippery slope to landing in deep debt, giving the illusion that you have more money than what’s actually in your account.
One solution is to use cash as much as possible, which helps to ensure that you’re spending within your means. It’s true that tracking your cash spending can be tricky, but our Take Charge Money Manager™ tool can help with that. It gives a snapshot of your saving, spending, and budgeting in one place, and you can access it online anytime.
6. Create a solid financial plan
If you’re trying to get somewhere new without navigation, you’re likely to arrive late.
It’s the same idea with managing your money: To get to your desired destination, you need a financial plan—a written document that assesses your overall financial health, outlines long-term goals and priorities, and maps out a strategy to achieve them. It is not the same as budgeting, which tracks your day-to-day cash flow. A financial plan seeks to answer important questions like:
- How can I pay off my debt faster?
- What are my short- and long-term goals?
- What’s the best way to save for my child’s education?
- Should I pay off my mortgage or increase my investments?
- TFSA or RRSP: Which is better for me?
A financial plan looks at the big picture and carves out a clear path to fulfilling your financial objectives. And, if you follow your planned route, you may even arrive at financial wellness earlier than you think.
7. Work with a financial planner
Know when to ask for help when you need it.
If crunching numbers make your eyes glaze over, enlist a “money coach.” A financial expert can optimize your saving strategy and chart out a path to achieving specific goals, such as retirement, getting out of debt, how to invest. If you’re taking steps to build a healthy financial future, a financial planner is like a doctor who has the cure for what ails you.
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Coast Capital® Savings Credit Union provides service and advice related to deposit, loan and mortgage products. Coast Capital Financial Management Ltd. provides service and advice related to insurance, segregated funds and annuities. Worldsource Financial Management Inc. provides service and advice related to mutual funds. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Fund Facts before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation (CDIC) or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated.
Gaining financial wellness: 7 Healthy Habits