With COVID-19 restrictions impacting our lives in so many ways, it may be time to review the changes in our finances that have occurred in the last 12 months.
Money fuels your life, allowing you to live comfortably, have meaningful experiences, and support loved ones. On the flip side, demands on your cash flow may cause you to lack the means to afford certain luxuries and accomplish lifelong goals, like paying for a child’s education, traveling to bucket-list destinations, or having a peaceful retirement.
Your circumstances and even your goals will change and evolve over time. Reviewing your finances on a regular basis enables you to adjust your strategies, review your objectives and make sure you’re on the right track. If you have yet to take diligent steps to organize your finances, it’s never too late to start. Follow these five simple steps to make the most of your money — and start on the path towards your goals.
Step #1: Review Your Financial Picture
The path to financial independence begins with spending less than you make, saving and investing the difference and using credit wisely.
To begin, gather your statements for a complete overview of your current financial situation. Understand how much money you have coming in and what your expenses are. List out things like your rent, groceries and other bills. Next, get an idea of your spending patterns — what you spend the most on each month, how much you’ve been saving and/or investing, and how much you’ve been putting towards debt repayment.
Throughout this process, you’ll get an understanding of where you can cut back. Can you spend less on restaurants? Can you buy one less coffee a week? Can you cancel a subscription to a service you no longer use? This process enables you to understand your patterns, weed out basic ways to spend less and create more cash flow.
Step #2: Formulate Goals
Understanding your priorities and goals is essential to developing a strategy to manage your money. Do you want to eliminate credit card debt or pay off student loans? Have you not yet started to save for retirement? Are you planning a wedding? Is there an upcoming trip that you need to budget for? Do you want to aim for a higher salary?
Taking a look at what is on the horizon for the new year is a good place to start. It can be easy not to factor in “small” expenses, such as a flight ticket home for a holiday, but these expenses can add up. Thinking both short- and long-term is key when identifying your goals.
Step #3: Create a Budget & Plan
Now that you have an understanding of your expenses, the areas in which you can spend less, and your goals, you can develop a budget and plan accordingly. Perhaps you want to start investing more and spending less on things like clothes and dining out. Or, maybe you want to save for a vacation. No matter what the case is, it’s essential to know how you’ll allocate your incoming dollars. With a budget and plan, you’ll be equipped to make the right choices when it comes time to making spending decisions.
Step #4: Automate Your Finances
Managing the responsibilities of day-to-day life is time-consuming. To maximize efficiency, set up automatic payments and transfers as an easy way to stay aligned with your goals. For example, you can set up a plan to put a specific amount of your income towards your RRSP, savings account, or debt every month.
Additionally, you might choose to automate your recurring bills like your internet or heat. Not only does this ensure that your bills get paid on time, but it holds you accountable as you work towards certain goals.
Consider setting transfer and automated payments for just after your pay day so money is "out of sight, out of mind."
Step #5: Monitor Your Finances
Establishing a plan and automating your finances will make it easier to organize all the different aspects of your finances. However, there are other components of your financial situation that are not fixed and cannot be automated. For example, spending decisions like entertainment are up to your discretion every month, though you can use certain apps to keep track of your spending. You might receive a salary bump or a bonus, in which case you might decide to start investing more or paying down debt.
Taking a regular look at your accounts and seeing if you’re on track towards your goals is critical. Setting up a time every week or every month is one way to make sure you’re consistently reviewing your situation. In addition, monitoring your finances can help you identify any credit card fraud or merchant mistakes in a timely manner.
Managing your finances is an ongoing process. Your strategies, goals and plan may look different as you move through new life chapters, but you can still take steps today to plan for the future you envision.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.