
07 Oct Money Matters
IN UNCERTAIN ECONOMIC TIMES LIKE THESE…
itâs hard to decide between revenge shopping and tightening our belts, because the desire for both is strong. Right now, thereâs still consumer confidence in the economy: The unemployment rate was at a historic low this past summer, and workers are still quitting their jobs as part of the Great Resignation due to factors such as burnout, industry changes and shifting priorities. But with consumer inflation hitting 8.1 percent, interest rates rising sharply and a potential recession on the horizon, the economic picture is suddenly looking a lot less rosy. Add in the facts that the Canadian economy has been shedding tens of thousands of jobs and homegrown companies from Hootsuite to Mejuri are announcing major layoffs and itâs starting to seem like an opportune time to work on improving our personal financial health.
âWe visit a dentist regularly to make sure our teeth are healthy and take our car in for a scheduled oil change, but sometimes we donât think to look at whatâs happening with our money,â says Melissa Leong, author of the award-winning finance guide Happy Go Money. A tune-up and maintenance plan can help keep our finances in check for the short term and the long term.
Whether you spend an hour or a weekend on it, a finan cial checkup offers valuable insights about the state of your finances, giving you a chance to notice and address potential money issues before they become bigger problems. âI might do one after a period of overspending, like after the holidays, when I feel out of control or lost or confused about my money situation,â says Leong.
As with so many things, the keys are finding the time and motivation to get started as well as breaking the task down into increments that feel manageable for you. âThe best time to do it is immediately,â says Jessica Moorhouse, financial educator and host of the More Money podcast. âIf you delay it, youâre honestly going to delay it for longer than you expectâŚand a lot can happen in six months or a year.â Even if you can only do one task now, like reviewing your budget or trimming unnecessary expenses, youâll be better off than if you donât get started at all.
TAKE INVENTORY
The first step of a money revamp is figuring out your income and spending, especially if you donât have a budget and arenât currently tracking those two things. âI recommend that Canadians identify their after-tax income, monthly fixed expenses (including rent, mortgage, savings, insurance, health, maintenance, property tax, vacation fund) and discretionary expenses (groceries, clothing, gifts, eating out, entertainment, personal care, travel) and make sure each category is itemized,â says Kelly Ho, certified financial planner and partner at DLD Financial Group. âItâs important to take inventory before trying to do better,â she says, adding that you should start by reviewing your bank and credit-card statements for the past two or three months. This part is essential because you canât improve your finances without fully knowing your financial situation. âClarity will bring comfort,â says Leong. âYou canât start to make your money work for you unless you look at how much youâre making, where your money is going and what you can do to make a positive impact.â
You can also use this opportunity to look at your dis cretionary expensesâthe ones that can vary from month to monthâto identify spending patterns. Then consider whether your budget and spending accurately reflect your priorities and goals. âWhat do you want to have happen with your money?â asks Moorhouse. âThatâs the more fun partâgetting deep and figuring out what you want in life and for your future.â This could mean setting aside part of every paycheque to save for a big trip (now that travel is possible again) or putting funds into a dedicated savings account for some guilt-free clothes shopping.
While creating or updating your budget and tracking cash flow, you might also realize that you actually need to find ways to increase your income, perhaps via a side hustle or a temporary part-time job on weekends, in order to pay off debt quicker or be able to book that girls trip to Mexico. âIf you want more than your income allows, then that means you need to earn more money,â says Moorhouse.
IDENTIFY IMPROVEMENTS
Once youâve got a clear picture of your cash flow, you can start making tweaks and improvements. Leong suggests things like cancelling any subscriptions youâre not using and diverting those savings to your emergency fund (more on that later). Bumping up your automatic savings plans by just $10 or $20 per month can make a difference over time.
Beyond curbing any excessive discretionary spending, you could also look at fixed expenses like your cellphone bill and remove any paid features or data packages youâre not using or see if you can find a better deal from the same carrier or a new one. This logic is ironclad: The more you can lower your monthly fixed costs, the more money you will have left over to put toward other financial goals. You could engage a professional at this stage to help you figure out whether your financial situation is in tune with your goals. âFinancial planning is not only for the quote-unquote rich,â says Ho. âItâs [about] gathering the courage to go and talk to someone and actually have a second [and maybe] a third set of eyes take a look at your situation and tell you whether youâre actually okay.
A professional can discuss best- and worst-case scenarios with you and help make sure that your current savings rate and investments will actually support your goals.â
PLAN FOR THE FUTURE
âEven if itâs just a little amount, start putting money into your TFSA or maybe an RRSP for your future,â advises Moorhouse. At the same time, donât forget to take a close look at your existing investments and any retirement savings to track their performance, make sure youâre not paying too much in fees and see if youâre on track to meet your long-term goals. âTake a look at what youâre actually investing in,â says Moorhouse. âIf you donât understand what youâre investing in, then that should be your signal to do a little more research.â
There are lots of different financial products out there, from stocks to exchange-traded funds to Guaranteed Investment Certificates. You want to know not only where your money is but also what the fees are and whether the returns have been good or not. âIf youâre paying 2 percent or more, then the fees are too high,â says Moorhouse.
SHORE UP YOUR EMERGENCY FUND
If youâve been able to cut your spending or find some savings in your budget, this is a perfect time to stash some money away for a rainy day. Considering the current global economic situation, youâll want to make sure that you have started an emergency fund and are contributing to it regularly. Moorhouse recom
mends having at least three to six months of living expenses set aside in a savings account in case youâre laid off or something else happens that negatively impacts your financial situation. âItâs a game-changer for most people,â she says. âThen you have a safety net.â
TRUC NGUYEN –Â ELLE CANADA
PUBLISHED OCT 2022