As you start into this New Year thinking of the things that you might want to change to better your situation, why not develop a personalized financial fitness plan? In reviewing the Bank of Canada’s recent comments, the one big cloud on the horizon is the ever growing household debt held by Canadians.
Many things we do in life come from habits we develop from early childhood through adulthood. So if we’re in the habit of spending all or more than we earn every month, sooner or later we will run into a financial brick wall, especially if we carry over balances on our credit card every month. Here some simple steps to consider if you want to make some real financial changes in 2017.
You can’t control what you don’t track: If you had to pay cash for everything you purchase you might be shocked. As electronic payments are so easy and quick, you lose touch with what you’re spending. Tracking your spending and what you’re spending it on isn’t as hard as it may seem. Start by finding out where the money’s going every month. There are many methods from smartphone apps to a simple notebook.
Have a rainy day account: Set up an automatic monthly debit of $25, $50, or $100 into a savings account, ideally a tax-free savings account. This is a simple process called “paying yourself first”. You will be surprised how quickly the value builds up. I have a piggy bank on my dresser and put my change in this every night. My wife just emptied it and deposited $134 into our bank account and this from just loose change!
Pay you credit card bills in full for every statement: I am surprised at the number of people who carry a balance over on one or more cards every month, who seem very shocked when I point out how much interest they are paying doing this! If you can’t control spending with your credit cards I would suggest using a debit card instead.
Ask your employer to set up an RRSP payroll deduction plan. The deduction comes off your pay before tax for an immediate tax break. Employers often will match your contributions up to certain limits.
Check out your banking options: There are accounts that combine your chequing, mortgage and line of credit all in one account. These charge simple rather than compound interest and have more flexible repayment options than conventional mortgages. Over the last 15 years we’ve used ours to pay down our mortgage early and do three major renovations. And now that we have a positive balance it pays us interest every month.
Save the money first to buy discretionary purchase items that are “Wants” rather than “Needs”. For example, I’d always wanted to own a BMW touring bike, but did not want pay price. So six months watching kijiji and lo and behold, a pristine 2005 unit pops up for sale in Richmond, BC for $9,500 versus $13,500 for a similar used one at a dealership. Then I waited for a seat sale with WestJet to Vancouver and flew out and rode it home. $300 to service it and fix some minor issues and it will last me for as long as I want to own a touring motorcycle.
You make the choice every time you want to buy something that is not a need, as our basic human needs are shelter, clothing, food, companionship and a decent job!
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