5 Keys to your Financial Well Being

Jan 15

Finding time to take care of your financial well-being can be difficult when there are so many demands on your time.

We all know that having a handle on our finances makes us feel better and more capable of handling life's unforeseen obstacles.

Where do you even begin when you start to consider all the aspects of your finances?

Let's streamline the review procedure by segmenting it into five important areas.

1. Make a budget

You'll have more control over your finances and a clear idea of where all of your money is going if you make a budget to keep track of your spending.

The following two steps will assist you in creating a budget:

Step 1: Determine the total amount of money you will receive from all sources, such as salary from a job, rental or investment income, child support, pension, etc.

Step 2: Make a list of all your expenses and categorize them into two groups:

Costs that cannot be avoided, such as rent, utilities, and mortgage payments.

Discretionary charges, also known as non-essential costs, should be prioritized according to what is most important to you if there are any funds left over after paying all of your non-discretionary expenses.

There are many benefits to creating and maintaining a budget:

Enables you to compare your needs and wants objectively.
Helps you balance costs for the items you might want while helping you better fulfill short-term priorities, including paying your monthly bills (such your mortgage, rent, and utilities).
Helps you find areas where you may be overspending and assists in reallocating these monies toward more significant savings goals, such as buying a car or home, saving for a child's education, or retiring.
Helps you develop a more successful debt repayment strategy

Depending on what works best for you, your budget can be as simple or as complex as you like. The key is to create a budget and review it at least twice a year, or if your income or expenses significantly change, to make sure it's still helping you reach your short- and long-term financial goals.

2. Pay off debt

Some Canadians could experience stress as a result of taking on new debt or making payments on previous debt. The first step is to put together a plan that details all of your debts and how you intend to handle repayment. Gaining control over your finances also requires knowing what solutions are available to help you pay off your debt faster.

Here are some tips to assist you in repaying your debt more quickly:

Restructure your debt

Based on the types of debt you have, there's a good chance you're paying more interest than is necessary. Lowering your interest payments can help you pay off your debt more quickly by freeing up much-needed funds. There are several methods for doing this.

Changing to a credit card with a reduced interest rate: Many credit cards have high-interest rates. If you owe money on your credit cards, you might want to look into choices with lower interest rates since you could potentially save money.
Debt consolidation: If you have several loans or credit cards, you might be able to consolidate them under one new credit application to benefit from a possibly cheaper annual interest rate and payment. This could fall under a new loan, a secured or unsecured line of credit, etc. You'll just have to make one simple payment this way, which should greatly reduce your worry.

Pick a debt-paying method

Think about using one of these two strategies to reduce your debt (but pick the one you feel will be faster or best suited to you).

The debt avalanche strategy: The priority with this strategy is to pay off the debts with the highest interest rates first. You move on to the debt with the next highest interest rate after it is paid, and so on.
The idea behind the debt snowball strategy is to pay off your smallest debts first. You may feel a sense of success as a result, and you can use that drive to tackle the following debt. This approach is more readily adhered to by many people. However, keep in mind that depending on how long it takes you to pay off your larger loans with perhaps higher interest rates, you can wind up paying more in interest.

3. Start to save - it’s never too early

Your greatest ally when it comes to saving is time. You can start generating savings for your short- and long-term financial goals as soon as you start working and are able to set away even a small amount each month. The earlier you start saving for retirement, the better off you'll be because compound growth has more time to work in your favour.

You must decide which products and/or investment techniques are best for you and your financial position before you start the saving and investing process.

Start by posing these three crucial questions to yourself in order to decide which savings and investment choices are the most suitable:

For what purpose are you investing or saving?

How long will it take you to achieve your goal?

How much risk can you take?

Then book a call with your financial advisor to talk about your goals and options. Options may include: Registered Retirement Savings Plans, Tax-Free Savings Accounts or an investment portfolio.

4. Put a financial plan in place

Consider a financial plan as your personal road map. It not only contains longer-term objectives like retirement planning and preparing for your children's education, but it also includes shorter-term objectives like saving for a car or a house.

A strong financial plan puts methods in place to help you reach your goals and focuses on your present requirements and future objectives. You'll feel more in charge of your money and at ease knowing that you have a plan in place to reach your financial objectives. Having a financial plan in place will aid you in preventing emotional decisions and hasty reactions during hard times. Once you've created a strategy, it's crucial to routinely review it to see if you're still on track to achieve your objectives or if any changes need to be made.

While everyone’s plan will be different, a financial plan is designed to help answer three fundamental questions:

Where are you now financially?
Where would you like to go?
And how will you get there?

A thorough financial plan will also take care of your estate-planning requirements, which include creating a will, a power of attorney, and putting tax-saving measures in place to assist you transfer assets to the next generation with the least amount of tax liability.

5. Protect yourself and your family

We put a lot of effort into creating a prosperous, secure, and happy life for ourselves and our families. We occasionally run into unforeseen circumstances along the route that could substantially impair our ability to uphold our level of living and support our loved ones.

In the event of difficulties such a job loss, disability, illness, or even death, an insurance-based financial strategy can keep your financial objectives on track and give your family financial stability.

Some issues to think about are:

What if you were forced to stop working as a result of an unexpected disability or serious illness? Could you continue making your payments on your line of credit and mortgage?
You suddenly passed away, right? Would your family be able to continue living as they do now, pay off your remaining debts, and be financially comfortable going forward?

Your company, private insurance, government benefits, or financial institution may all offer different types of insurance coverage. The goal is to educate yourself on the coverage options and choose the one that will best suit your financial condition and give you and your family the necessary protection.

Reach out today if you’d like help putting together your financial plan. 705.427.2006 or brenault@liahona.ca