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Canadians are stressed out, anxious, and are feeling disconnected from each other. Once a week, we’ll share a tiny tip to help you feel good. We’ve got your back.
Learn how budgeting can help you get control of your money.
What it is
I was never taught basic financial planning in school, like how to create a budget, track my spending, how to plan for my retirement, how to pay off debt, and the importance of opening a savings account.
I learned this all on-the-go, and I’m still embarrassed by my lack of financial knowledge. There are so many things I don’t completely understand (What kind of stocks should I invest in? What kind of mutual fund is best? Why is my financial advisor investing my money in this company and not that one?) and the more I talk to friends and colleagues, I’ve realized that I’m definitely not alone in feeling this way.
A 2017 survey found that Canadians think they are more financially literate than they actually are — although 78 per cent of the respondents said they were financially literate, only 31 per cent of millennials passed the survey’s questionnaire. Financial literacy gives us the knowledge and the skills to manage our money effectively, and learning how to create a budget is a step in the right direction.
For whenever you’re feeling
If you’re feeling overwhelmed by all the financial advice being thrown at you; if you want to start being in control of your finances; if you’re not sure how to save money; if you want to save for your retirement but don’t know how to get started.
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How it can help
Having control of our finances by way of budgeting can ease up so much stress we have around how we spend and save our money.
Here are some ways budgeting can improve your life:
It can save you money
If your rent or mortgage takes up a lot of your take-home pay (and if you’re a renter in Ontario, it most certainly does), you may think it’s impossible not to live paycheque to paycheque, but if you learn how to create and stick to a budget, you should be able to have something left over to put in a savings account.
When you’re not following a budget, “it’s difficult to hold yourself accountable on where your money is coming from and what it’s going toward,” reports Fastweb.com. A budget will help you break down where your money should go, for example, this percentage goes to the rent/mortgage, this goes to my TFSA (tax-free savings account), this goes to the phone bill, this goes to entertainment, this goes to food, etc.
Saving money each month can save you, should you be hit with a big unexpected expense such as unemployment, pet surgery, home maintenance, car repairs, a new phone, and the like.
It can get you out of debt
Maybe you’re at a point where you need to pay off those student loans or credit card debt before you even think about saving money, or maybe you want to do both at the same time.
If you’re not sticking to a budget, you might find yourself stuck in a cycle of debt that’s hard to escape. Basic points to review include: creating a budget, setting a payment timeframe, paying off debts with the highest interest rates, paying more than the balance minimums, working with your creditors, closing accounts you no longer owe money to, and reducing your spending.
A budget will help you figure out how much of your paycheque you can put towards paying off your debt each month. I recommend having money taken out of your chequing account automatically so you don’t even have to think about it.
You can save for retirement
All of us are eventually (hopefully) going to retire, but when we’re young, retirement isn’t really on our minds because it seems so far away. Not only that, but we’re paying off student loans and struggling to pay rent.
As a result, many young people aren’t putting money into an RRSP (registered retirement savings plan), which is a missed opportunity because, “the sooner you start contributing to an RRSP, the more money will be in the RRSP at the end, when you want to start withdrawing money from it to live on,” reports Intuit Turbotax. Ah, the magic of compounding!
However, even if you don’t start contributing to an RRSP until your 30s, that’s OK, too. “Saving for retirement is unlikely to be a top priority in your 20s,” Norbert Schlenker, president of Libra Investment Management Inc. in Salt Spring Island, B.C., told MoneySense. “Instead, do what you can to increase your income, cut your expenses, and start cutting your debt.”
This involves (yep, you guessed it) maintaining a budget. Talk to a financial advisor about what your retirement goals are, and then figure out how much you want to contribute to your RRSPs each month. A budget will help you stick to this plan where you’re contributing to you RRSPs on a regular basis.
How to get started
Ok, that’s a lot of information to process, so here are a few resources and tools that can help break this all down for you.
Before you start, take this financial literacy self-assessment quiz and then head over to the Canadian financial literacy database, which houses everything you need to know, including information on budgeting, events, money management, saving, investing, and taxes.
Below are some resources you’ll find helpful:
How it makes us feel
Budgeting makes me feel secure in that I know I have enough money to save for a rainy day (and retirement), and to play around with. It’s comforting knowing that I’m in control of my finances.
And that’s your habit of the day.
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