1. The most important tip – This tip is the most simple and may seem very logical but it amazes me the number of people I know family and friends that do not actually make more money then they spend! It is very easy in todays world to spend spend spend… with credit cards, lines of credit, cheap loan rates and banks that will allow you to borrow until it isn’t possible to pay back. This tip in its most basic form is “ensure you Live within your means!”
2. Prioritize Saving! – We all get the same feeling on payday, We feel on top of the world pockets full of money! But now is the time you need to save (Either pre-authorized contributions so they come out automatically, or on the day you get paid make a contribution to a savings account.
3. Save the correct amount! This differs for everyone, however my recommendation is saving between 15-20% of each pay check. Honestly when I began doing this I did not even miss the money.
4. Emergency Fund – Please ensure you have an emergency fund! This is a set amount of money to use for the unexpected. I recommend funding this account until you have a confortable amount to cover your costs for about 3 months. (you never know when you may lose your job, require major vehicle repairs, need a new roof on your home etc…) For me I keep about 10,000 as a emergency amount which I feel would get me through about 4 months of my current expenses.
5. RRSP, RESP, Pension or any employer funded or match contribution plan – This is free money take advantage of it! If your employer has a plan to match a certain percentage of your salary. I have worked for a few companies that have matched my contributions up to a certain amount usually 5-10%. Either way whatever they match I recommend that you ensure you max out your employers contribution. If they offer a pension plan as well take advantage of that when you are young as this can greatly help in your later years.
6. Invest – Maybe the most important and scariest! But with the power of compound interest this is vital to be financially independent later in life. No knowledge of investing the stock market the bond market etc… no problem there are tons of sites that recommend allocations, funds, bonds and with the pressure on management expenses most bank Funds are becoming much more competitive. (I recommend following Canadian Couch Potato) he recommends a diversified portfolio of 3 ETF’s or Mutual Funds that can cover off all your investing needs. Another option you have is to find a high quality mutual fund manager with a low management expense and let them handle your money!
7. Budget – I know budgets are boring, hard to follow and make you feel like an old man or woman on a Canadian pension but budgets are important! I don’t mean stress over every dollar you spend but at the beginning of the year it helps to give yourself a budget that includes your savings. Monthly you can track this and see where exactly your money is going. This is the important part of the budget. It helps you determine exactly where your money goes and if there are areas you think you can spend less! For example I was spending $60-100 a month on coffee! Did I need that café Americano from starbucks every morning? Defiantly not I could make coffee at home for only about 10 bucks a month or less! Little things like this can add up over time and its important you are aware. On the other side if things are really tight financially you can utilize a system I have seen work (the jar system) Take jars label them with your expenses and put your budgeted amount in each (Ie Groceries and $300) in the jar this limits the amount you will spend and can keep you on your budget each month.
8. Eliminate High Interest Debt – If you have credit card debt (probably the worst) you need to prioritize paying this off! Often the bank will offer a line of credit or other form of money with a far lower interest rate! But all in all the goal is to be debt free so ensure you pay this off before investing or saving any other money. I am not stating to not take on any debt (ie: I have a mortgage and a vehicle loan) but they are low interest rates and at the time I could not afford these things in any other way. Student loans are along the same lines, but I really want you to make an effort to pay off any debt.
9. Taxes – Be aware that you have to pay tax on income so the goal here is to be aware or taxes on income and opt to either get a refund at the end of the year or avoid paying extra in! RRSP contributions are the best tool here as well as tracking expense for your business/school etc.
10. Earn Extra Money – This sounds simple and it is! Outside your regular job try and make some extra money each year, cut a relatives lawn, monetize a website or YouTube channel, sell old items on kijiji or ebay, get a second job. There are plenty of options here but making some extra money can greatly help you in the long run.