2020 was a difficult year on so many levels. From the lockdowns through to layoffs and business closures, everybody had it tough. The rapid rise in unemployment and insolvency has created a debt crisis for Canadian households. By the end of 2021, Canada will have a $1.6-trillion debt.
A 2020 Consumer Debt Report by the Credit Counselling Society (CCS) illustrated the impact of COVID-19 on the personal finances of Canadians. According to the report, nearly two-thirds (64 percent) of Canadians carry non-mortgage debt, with almost half (44 percent) surveyed admitting they have a month or less in emergency savings.
Fortunately, 2020 is behind us, and 2021 presented a fresh start and the opportunity to make up for the lost time. Change is on the horizon for many Canadians, whether that means a new job or new business prospects. One thing that won’t change, however, is the significance of managing your personal finances.
As we head towards the third quarter of 2021, here are 7 of the best tips to take control of your finances and maybe even turn your fortunes around.
#1 Create a Budget
Many of us have good intentions with money, but it’s impossible to plan financially without knowing what’s coming in and what’s going out.
Creating and sticking to a budget could help you take ownership of your own financial situation.
When you open your eyes to the reality of earnings and debt, it’s easy to pinpoint areas that need a real change.
If you’re new to the concept, a budget may sound intimidating. But trust me, it’s not as difficult as it may sound. You don’t have to re-invent the wheel for this one.
A comprehensive excel spreadsheet or a simple and free budgeting app such as Mint or Hardbacon is all you need to start tracking your expenses.
#2 Build an Emergency Fund
If 2020 left us with any lesson, it’s that emergencies happen when you least expect them. You can never be fully prepared for every curveball life may throw your way.
Even if you haven’t been directly affected, you don’t need to wait for another global pandemic to start building your emergency fund.
Aim at stashing away 3-6 months’ worth of expenses in a separate savings account.
Doing this will help to ensure that you’ve got enough money to keep you afloat come what may, giving you the self-assurance to live your normal life whilst safe in the knowledge that you’re financially secure.
You will find it a lot easier to build up an emergency fund quickly if you have the right help, advice and assistance by your side, so this is certainly something you should think about seeking out as well. That will probably come in the form of a financial advisor or planner, and you should make sure that you are choosing such a person carefully. Take a look at this guide on How to Find the Best Financial Planner for You if you are curious about doing this. If you can, this will help you build your fund in no time.
#3 Tackle Debt
While debt is a big barrier to financial stability, sometimes it’s necessary.
If 2020’s events put a strain on you, it’s okay if you piled some of your holiday shopping onto a credit card or took out a line of credit.
But it’s now time to deal with your debt. Keeping debt around will not do you any favors. Debt can affect both your current budget and savings for the future.
You can choose to focus on the consumer debts with the highest interest first (debt avalanche) or tackle debt from the smallest balance to the largest (debt snowball).
If you want to consolidate your debt, it will help to compare Canadian credit cards.
#4 Automate Everything
When calculating a budget, it’s common for people to forget to save. If you find it difficult to save money, maybe it’s time to put your finances on autopilot. Consider talking to your bank to set up automatic deposits and investments.
Some apps will help you invest spare change. Choose a Canadian online broker if you want to dabble on the stock market. If you’re not yet saving anything for retirement, this is a good place to start.
#5 Be Frugal
You don’t have to live a life of poverty and deprivation to live a frugal life. Instead, frugality means being intentional about your spending.
Is it necessary to buy that recently released iPhone when you could purchase an older model that practically does the same thing? Do you need to shop at the mall when you could find practically the same dress at your local boutique?
Learn to separate needs from wants and take time to get the best deal on the stuff you need.
Plan for your weekly shop in advance and if you want to go on vacation, do it during the quieter times of the year.
#6 Work on Your Credit Score
Your credit score defines everything from whether a landlord will rent an apartment for you to whether lenders will give you a mortgage.
Think of it as an insurance policy to lenders. Borrowers with high credit scores get lower interest rates and better loan terms.
Find out what your credit score is first, then look for ways to improve it to increase your future credit options.
Ways to improve your credit score include keeping your credit utilization rate low and making on-time payments.
It also helps to check for any errors in your credit report.
#7 Protect Your Loved Ones
What will happen to your family if you can no longer work or, worse, pass away?
Planning ahead will ensure that anyone dependent on your income would be taken care of should things go awry. This means setting up life insurance, a will and possibly a Power of Attorney.
Many Canadians procrastinate on these legal tasks, but they are much too important to ignore.
#8 Make 2021 Your Best Financial Year
Many Canadians don’t have control of their finances due to simple neglect rather than a lack of knowledge. Regaining control of your finances will allow you to make the decisions that will secure your future and that of your family.
What steps are you taking to take control of your finances in 2021?