The 3 things I have found your should focus on for strong financial health:
- Don’t borrow money for anything but your principal residence.
If you want to buy a car save up and pay cash for it. If you want to go on a vacation save up and pay cash for it.
Unfortunately our culture pushes us towards debt.
For example we are told in order to be successful you should drive this car, live in this house, wear these clothes, etc…. I have talked to so many people that their car payments could have been a mortgage payment instead.
Another example is being sold on low interest rates as a great time to buy a vehicle, boat, toy, etc…. The interest rate isn’t the problem it’s the loss of cash flow that causes financial stress. When people say the cost of living is killing them there is a very strong chance they have debt or many debts that are dragging them down. - Have a fully funded emergency fund of 3 to 6 month of expenses.
You want to keep the funds safe and accessible like in a high interest savings account (HISA) or term deposit. It is tempting to invest these funds in the market but you don’t want to be in a situation where you need the funds during a market down turn and have to sell at a loss. Life happens and if you don’t have the funds to ride through unanticipated circumstances (like job loss, illness, etc) or unanticipated costs (like needing to replace your furnace, being charged a special levy, etc) it can be financially crushing. - Budget, Budget, Budget.
I know this could sound painful but it’s an incredible way to take charge of your money. Budgeting isn’t just tracking your spending it is being proactive and allocating your income to various buckets. For example if your income is $1000 you might allocate $300 to your housing bucket, $150 to your transportation bucket and $200 to your food bucket. Housing, transportation and food are the 3 main essential expenses. That would leave $350 for your various goal buckets (like savings up to buy a vehicle, saving for retirement, saving for a child’s education, etc…) , fun buckets (like eating out, saving up to go on a trip, etc…) and other expenses buckets. I like to equate physical health where you need to move and eat well to be physically healthy, to your need to budget and plan to be financially healthy. You want to review your budgeting at least monthly, maybe the 17th of each month is your budget day where you take out your numbers and review everything. Do you need to adjust your bucket amounts? Are you on track to meet your goals? Are there other goals you want to add or adjust? These monthly budget meetings are a great way to discuss everything about your money, then you can just put it away and not think about it or talk about it until next month’s budget meeting. This helps relieve financial stress between partners. You want to track every dollar you make to ensure it is working for you. Businesses have monthly budget meetings to review revenue and expenses, you want to treat your household like a business to do the same. Let your numbers not emotions make your financial decisions.
Here are a couple of websites to help you with Budgeting:
Budget Planner:
https://itools-ioutils.fcac-acfc.gc.ca/BP-PB/budget-planner
Income, Expenses & Budget:
Dave Ramsay 7 Baby Steps