Managing money is hard, and good money habits are often the difference between financial freedom and debt.
If you can’t afford to save money and have no money left after bills, it’s time to adopt better money habits to save money, reach your financial goals and achieve financial independence.
Good money habits to adopt
Adopt the following good money habits to put you on the road to financial independence.
1. Create a budget and stick to it
Creating a budget is the foundation of good money management. A budget lets you track your income and how much you spend every month, helping you plan your spending and save for the future.
Put together a budget that lists all your income, including your salary and bonuses. Then work out your expenses like rent/mortgage, utilities, groceries, transportation and debt repayments. You should also set aside a monthly amount for unexpected bills and emergencies.
Once you know what’s coming in and out, you can see where you are spending too much money and find ways to reduce expenses, increase your income, pay down debt and save money.
The 50/30/20 budget is a good place to start. Divide your income into three categories: 50% for needs, 30% for wants, and 20% for savings or debt repayment.
Budgeting and spending less money requires discipline. You can track your expenses using budgeting apps such as Mint or YNAB, making it easy to recognize overspending and identify areas where you can cut back.
2. Pay yourself first
When your paycheque reaches your chequing account, put some money aside for savings before you pay your bills.
This helps in several ways; you avoid spending money you don’t have on things you don’t need, and it pushes you to make more money or reduce expenses elsewhere.
To avoid temptation, automatically transfer money to a separate savings or investment account that is not easy to access.
3. Reduce debt
Debt can stop you from achieving financial independence. High-interest debts, such as credit cards and loans, can cost you thousands of dollars in interest, so it’s important to pay them off as quickly as possible. Prioritize debts with the highest interest rates, then work your way down.
There are many strategies to get out of debt and various debt relief programs available. By paying off your debt, you can start saving more money and improve your credit score.
4. Live within your means
Living within your means is an essential money habit. Small changes to spending habits can make a big difference to your wallet.
Cancel subscriptions you don’t need, reduce energy usage, shop at dollar stores, buy store brands, eat out less and use grocery flyers, coupon codes and cashback programs to save money.
Check out our guide on how to save money in Canada.
By cutting unnecessary expenses and being more frugal, you can save more money and direct it to your financial goal.
5. Watch your credit score
A good credit score can save you thousands of dollars on interest yearly. Your creditworthiness unlocks the best offers and interest rates.
You can improve your credit score by making timely payments and keeping your credit balances low. Build a long credit history using a variety of credit products.
Use a secured credit card to boost your credit rating if you have a low credit score (or none at all). Check your credit report monthly to catch any unexpected changes and unauthorized credit inquiries.
6. Automate savings and bills
Make life easier by automating your money. Set up automatic bill payments to ensure you don’t forget to pay and automate transfers to your savings account.
Many apps help you save by rounding up purchases to a dollar amount and saving the difference automatically. This is a handy way to keep on top of your finances.
7. Review your bank statements
Check your bank and credit card statements on a monthly basis to identify wasteful spending that’s draining your wallet and spot any unauthorized or fraudulent transactions.
8. Use tax-advantaged accounts
Take advantage of a Registered Retirement Savings Plan (RRSP) to save for retirement while growing your money through investments and reducing your taxable income.
Contributions can be deducted when filing your taxes for the previous year. So if you contribute $5,000 to your RRSP, your income for tax purposes is reduced by $5,000.
You can deposit up to 18% of your earned income from the previous year, up to a maximum of $29,210. Any Canadian with income from a job who files a tax return can contribute money to an RRSP.
Some employers offer RRSP matching programs, where the company matches your contribution up to a certain amount (or up to a percentage of your salary).
You can also use a Tax-Free Savings Account (TFSA) alongside an RRSP. While you cannot reduce your tax bill by paying into a TFSA, you don’t pay any tax when you withdraw the money.
9. Don’t try to get rich quick
Get-rich-quick schemes don’t work. Avoid gambling or playing the lottery; you always lose in the end.
Don’t gamble on the stock market. Put your money into safe, long-term investments. Seek professional advice from a financial planner.
10. Don’t forget to treat yourself
Life is too short to live miserably. While working towards your financial goals, ensure you occasionally treat yourself for your happiness and well-being.
Treating yourself doesn’t need to be expensive; it can be as simple as buying a coffee, getting your favourite takeout, or any activity that makes you happy.
Learn good money habits to manage your money more wisely and achieve financial freedom. With patience and hard work, you can implement good habits to secure your financial future for years to come.
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