Financial Basics 101: A step-by-step guide


Create a plan to manage spending

Pay Yourself

Learn more about how to improve credit score

Create a debt repayment plan

Set financial goals

✔ Protect yourself against fraud

Having a strategy to help you save money, pay off debt faster and make your money grow builds confidence, reduces stress and builds a solid financial future. Especially after the past year which was marked by the COVID-19 pandemic, many Canadians are looking to build better tomorrows. 

Here is a step-by-step approach to graduating from Financial Basics 101.

Step 1: Manage spending by preparing a budget

Creating a weekly or monthly budget is one of the most useful exercises you can do because it lets you track what you earn versus what you spend. You can use an online budget calculator or put it all on paper. Either way, it’s important to get all your paperwork together, such as household bills, paystubs, debt payments, contributions to savings or emergency funds, and all receipts, so your budget will be as accurate as possible. Once you subtract all your expenses from your income, you’ll see what’s left over. If there isn’t enough, you need to find ways to reduce your expenses and/or increase your earnings. 

Step 2: Pay yourself

If you’re like most Canadians, you might not be saving enough. On average, Canadians save just over 3% of their earnings, although the good news is that, because of the pandemic, which has cut transportation, vacation and other costs, Canadians were saving a lot more in 2020, according to Statistics Canada. Even if it’s just $25 a month, the key is to start some kind of savings plan – to protect you against hard times or build up a nest egg. The habit will grow and will inspire you to not only stay the course but increase the amount gradually. Once you know what you can afford to save each pay period, set up an automated transfer to go into a savings account so you will be building up savings without even thinking about it.   

Step 3: Understand how to manage credit

Even if you’re a super saver, big-ticket items such as your first home or a wedding require borrowing money. Whatever your goal is, your lender will want to see a credit score to determine how likely you’ll be to repay your loan. Typically, people start building a credit score by getting a credit card and paying all their bills on time. The more types of credit you have (e.g. credit cards, retail accounts, mortgage loans, installment loans), and the longer your good payment history is, the better your credit score will be. Make sure you don’t borrow more than you can afford to pay back.

Step 4: Pay off debt

Every day you don’t have a plan to pay off debt means another day of interest paid. Figure out the total, and monthly payment owed on each debt, and start prioritizing which to repay first. Two strategies for paying it off are the avalanche and the snowball. A debt avalanche plan targets debts with the highest interest rates first. A debt snowball plan has you pay the smallest debt first. If you need short-term victories to inspire you, then opt for the snowball method. If you are patient, you are a debt avalanche candidate.

Step 5: Set financial goals

High achievers in all walks of life have one thing in common: They set goals. When you set financial goals – such as getting out of debt faster or growing retirement savings – it’s easier to keep your focus on the prize. Look at what you want to achieve over time and then put any extra money towards that goal. For example, you could set up a separate account to save for a down payment for a car or home. You could set up automatic withdrawals from your paycheque to go into a fund for unexpected life events like the loss of a job.

Step 6: Protect yourself from fraud

Fraud is all around us and even more so during times of crises. The COVID-19 pandemic has caused an increase in the number of fraudsters trying to part Canadians with their money. A few of the typical red flags to watch out for are: personal information requests, overpayment notices, unsolicited friend requests on social media, unsolicited phone calls, or astounding mail offers telling you that you’ve won a large sum of money. Always confirm the identity of anyone who might contact you, and never send money to anyone who calls or emails you. Also, keep a close eye on your bank and credit cards, going over your statements every month, to make sure no one has accessed your accounts and is using them.

By following each of these simple 6 steps, you will have built a foundation in financial basics, and set yourself up for better tomorrows this year and beyond. To learn more about creating a financial wellness plan, try our 30-day Financial Wellness Challenge! 

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