It’s never too late – 6 simple ways to get your financial act together
Long time readers of this blog know that we try and do a few things really well when it comes to money management (instead of trying to be the perfect saver or investor). That’s because nobody is perfect, there is no perfect savings plan or investing plan, and there is no perfect portfolio.
In this light it’s really never too late to change your relationship with money. Here are six simple ways to get your financial act together.
- Track your spending
Lame? Some might say so.
Find out where all your money goes. As the old saying goes you can’t manage what you don’t measure.
In tracking your spending, this doesn’t mean you have to cut back your spending but I think you’ll find you’ll want to in some areas once you do the math.
Start small on this one. Meaning, try tracking your spending over a week or two for starters. Use things like your credit card statement, online bank statement, a spreadsheet or this cool app called $pendee (no affiliation) I learned about to help you out.
- Automate your savings
Consider setting up an automatic transfer of your income to an existing or new savings account. Even a dollar amount of $5 per day will help – which can really add up over many months.
Author note – did you know investing a measly $5 per day for 30 years earning a modest rate of return will grow to over $150,000!?
If your goal is not investing, that’s fine. It’s your money after all. My point is small, routine money transfers can be used to establish an emergency fund or park savings for future short-term expenses like a great debt-free trip.
- Calculate your net worth
While I don’t think you should obsess over your net worth I do believe this calculation will provide you with a good financial snapshot of where you are at a given point in time. We recently did this calculation. We were pleasantly surprised by the result. I figure after we slay the mortgage dragon we’ll be in far better shape.
- Trim spending in one area – this year
Once you know how much you’re spending (see #1) you can consider what value this spending adds to your life – and cut back in areas that don’t.
Maybe you love nice dinners out? All good. We do too. However to offset a nice dinner out every month (something we value) we cut back in other areas. We take our lunches to work as much as we can. We’ve made our home more energy efficient – saving money on heat and hydro costs.
I would urge you to trim spending in just one area, this year; how you could save more money each month:
- Look at your home insurance, car insurance; consider owning term life insurance
- Look at your home utility costs such as heat, hydro, water and telcos; consider how to cut back.
Again, some small changes can mean some big savings over time.
Now while small changes are good – at the end of the day though it’s probably far more important to get the big purchases in life right. This means never paying too much money for a house and not buying fancy new cars often.
What’s my big purchase affordability test?
Unless you can save at minimum 10% of your net income off the top every month for your future self, you probably can’t afford the big house and you can’t afford the new shiny car.
- Set one short-term savings goal
Figure out this one question this year: what do I want my money for?
Is it for travel?
It is for something new around the house?
It is for a small shopping spree?
It could be for all of these things…and good on you.
Setting one short-term savings goal (and realizing it) will get you into a great habit of saving for others in the future. Good habits are also hard to break.
- Identify just one investing account and learn about in detail
Not sure if you should contribute to a Tax Free Savings Account (TFSA)? What the heck is a TFSA and what can you put into it?
Wondering if the tax-deferred Registered Retirement Savings Plan (RRSP) is right for you?
Curious about the Registered Education Savings Plan (RESP) to support your kids’ education needs?
There are many accounts vying for your attention. Consider picking just one of these accounts to learn more about it in greater detail over the next year. Don’t try and boil the ocean – again – start small. Taking time to read up on just one of these accounts likely won’t cost you anything and if anything, it might save you thousands of dollars in saving and investing mistakes.
Money management doesn’t have to be complicated but changing your behaviour is never easy. This is why acting on any one of these areas above will definitely help. Good luck and let me know how you do (or what you have done) to change your ways.
Nobody is perfect and you don’t have to be to get your financial act together.