This month is Financial Literacy Month in Canada. It’s amazing how effective it can be to get back to basics.
The reality is, the things we need to do to build a solid financial future are not that difficult. However, we tend to need reminders. Here’s what you need to know about the most important pillars of effective personal finance:
1. Spend less than you earn
It seems really simple, and you’ve heard it a thousand times. Too bad a lot of people don’t follow this basic advice. No matter how many times you’ve heard it, this concept remains the cornerstone of personal finance.
Pay attention to what you have coming in and what is going out. You need to make sure that you aren’t spending more money than you earn. Track your expenditures so you can see where the waste is. Then, cut out the things that are putting you over budget on a regular basis.
2. Build an emergency fund
You need to be prepared for the unexpected. Without an emergency fund, you could be in real trouble. A good emergency fund can help you pay for the small things that crop up. Need a car repair? Did your washing machine break? Your emergency fund can help you pay for these things – without turning to debt.
Over time, you can build your emergency savings to the point that you can actually cover a few months’ worth of expenses if you lose your job or run into some other massive financial catastrophe. Start small and build over time.
3. Protect your assets with insurance
It’s vital that you protect what you have. Few of us have a few thousand dollars just sitting around to buy a new car if something happens. Could you replace your home if it was destroyed by a natural disaster? Probably not.
The right insurance can help you protect your assets. It’s part of a comprehensive financial plan that can increase the chances that you are protected in the future. You can use the internet to find the best rates on auto and home insurance. Make sure you include insurance in your calculations.
4. Pay down debt
If you have debt, you need to focus on paying it off as quickly as possible. High interest consumer debt, like payday loans and credit cards cost you every month. When your money is going to interest, it’s lining someone else’s pocket. Don’t let that keep going. The faster you pay off your debt, the quicker you can start taking that money and putting it to work for YOU.
5. Invest for the future
Don’t forget that investing is a major part of a good financial future. You can’t build wealth for the future without the help of compound interest. The good news is that the Canadian government is very interested in making sure that you set money aside for your future.
Qualified plans like the RRSP and TFSA can help you save for retirement and other goals. You can use the RESP to save for college for your kids. Don’t underestimate the importance of investing.
As you look ahead to your future, make sure you pay attention to the potential your finances have. Get the basics right, and everything else will follow.