As we head into the new year, 2021, here are five best practices which we exercised through 2019 & 2020 and would recommend as a lifestyle to ease financial impact, become financially stable, build wealth and take control of your finances for the years to come.
BUDGETING
A budget is an estimate of income and expenses for a set period, usually a year. I know this sounds so cliché but to be honest, we did a detailed budget for 2019 and 2020. Especially when planning a wedding, which we did in 2019, and trying to survive COVID’s financial impact. Detailed budgeting helped us to see where every penny was going and most importantly, it gave us a clearer picture of what to cut back on in our spending. A budget may also assist in discovering expenditures which are needs versus those that are wants and gives way to converting some of those monies spent on the wants into excess cash that can be put to better use. The habit of budgeting also strengthens “financial muscles” which makes one more disciplined with spending and improve savings habits. This further results in less debt, more assets and a better financial position each year. Please see link at the end of the read for a budgeting tool to get you started.
EMERGENCY FUND & A SAVINGS PLAN
You may ask what emergency fund is? Well, it is exactly what it says it is. Money put away in case of unexpected events, an emergency or a pandemic such as COVID-19. It is recommended to have three to six months of your monthly expenses saved in case of an emergency. To achieve this goal, one must first have a savings plan. If COVID has taught us one thing, it is the importance of emergency funds and good financial planning habits. Our emergency funds assisted in balancing our budget after our wedding. We came back to our country (Canada) going in complete lock down, employment being placed on hold and a hiring freeze. Even with the governmental assistance, I am quite sure that most people struggled to maintain their standard of living, pay their bills and run a household without their regular salaries or incomes. This is where your emergency funds will help to top up government assistance to ease the pressure and lessen the burden of a sudden financial impact.
AVOID IMPULSE OR UNNECESSARY SPENDING
We, especially females, are victims to this kind of spending. That little cute dress that you must have, or that little pick me up shopping or the “I deserve this” kind of shopping…lol, I am sure we can put a few more names to this kind of spending, but we all know it too well! Another thing we can all agree to is the ease with which we spend when we know the money is in the account or you have that credit card. Well one thing my husband and I did and found effective was cutting down on those kinds of spending. You would be surprised how much money squeezes out of the door when that kind of spending becomes the norm. My advice is to start checking in on those little spending because they do add up. Don’t get me wrong, I am not saying you should stop supporting businesses or your friends, I am saying plan your spending. Plan how much you will spend each month, on entertainment, supporting businesses and friends, charities, shopping et cetera. This will prevent you from racking up unnecessary debt and spending more than you have.
AVOID TAKING ON UNNECESSARY DEBT
How many times have you been in a store and the cashier offers you an in-store credit card? Yes hons, please do not go taking on unnecessary credit cards. Too often you take that credit card thinking you will only use for emergency and then, “boom!”, just like that, you have another credit card with an outstanding running balance. Do not take that card sis!! My philosophy is if you don’t have it, you cannot use it. Again, practicing these measures help you to become more disciplined at living within your budget which is the perfect way to greater financial stability and a wealth mindset.
PAY OFF HIGH INTEREST RATES DEBT FIRST
It’s important to note that if you have multiple creditors or have different types of debts, for example, lines of credit, credit card, loans, mortgages et cetera, paying off those debts which carry higher interest rates (such as credit cards) is best. I am not saying you should ignore your other low interest credit obligations. My recommendation is to pay what you must on low interest rate or secured debt and focus more on paying off higher interest rate debts. The ideal situation on how to manage high interest rate debt is to pay off what is used on those debts each month. This allows for more funds in your hands for savings or paying down other debts and paying less out in interest cost.
Thanks for reading. Please feel free to share, comment and stay tuned for more tips to financial freedom and wealth building.
Link to free budgeting tool
https://www.scotiabank.com/ca/en/personal/investing/investment-tools/money-finder-personal-budgeting-calculator.html
By: Arcadia O’Brien
Date: 29.12.2020