What does thinking about your finances do to your blood pressure? For many, money issues are the main source of stress and anxiety.
In fact, 48% of Canadians say they’ve lost sleep over money worries, according to a study by the Financial Consumer Agency of Canada.
Money management is not a skill that comes naturally to many people. They don’t exactly teach it in school, and even if you have things planned, life is sure to throw curveballs at you.
With these basic money management skills, you can feel better prepared for financial twists and turns.
1. Cash flow monitoring
The first money management skill to master is to keep track of your cash flow – a fancy way of saying “know where your money is going”. After tracking spending for a few months, many people find that they spend more on certain things than they thought they would, like restaurants or subscription services.
With a better understanding of your spending, it’s easier to make an accurate budget and think about reallocating funds to efforts that will have longer-term benefits, like saving for retirement.
2. Set financial goals
One of the best money management skills is the ability to set — and stick to — financial goals. This can range from paying off debt to securing enough money for a comfortable retirement. Without fixed goals in mind, you’ll just fly by the seat of your pants. It rarely works in your favor.
In an ideal world, you’ll work with real numbers to help you achieve your goal. For example, suppose you want to buy a house in five years and you know you will need a down payment of $100,000. That means you need to save $20,000 per year or $1,666.67 per month.
But goals can also be small and simple. For example, set aside $50 per month in an emergency fund for unexpected expenses. Having achievable financial goals is never a bad idea because you will always have something to work towards.
3. Use tools to save time (and money)
Almost everyone has money in a bank account, but did you know that certain types of accounts earn interest while your money is in them? These accounts won’t make you rich, but they are a great way to grow your money while pursuing bigger goals.
Credit cards can be useful money management tools when used responsibly. Some cards can help you build credit, earn money, or make your trips cheaper. Balance transfer and low interest credit cards can even be used to reduce your overall debt.
There are also mobile apps that will analyze your expenses and even give you suggestions on how you can reduce your expenses. Some apps will even automatically save and invest for you.
The thing is, whether it’s a high-interest savings account or a budgeting app, there are plenty of great tools out there that can help you manage your money more efficiently and even save money.
4. Maintain your credit score
Your credit score is a three-digit number that ranges between 300 and 900. Credit scores are calculated based on your bill payment history, credit usage, difficult requests and more.
Lenders consider your credit score a key factor when deciding whether or not to allow you to borrow money. Whether it’s a mortgage or a credit card, the higher your credit score, the more likely you are to be approved at a reasonable interest rate.
Maintaining (or rebuilding) your credit score is something you can take charge of on your own, at any time. Paying your bills on time, keeping your debt balance low, and limiting the number of inquiries on your credit report are all ways to maintain a healthy score.
5. Understand how different accounts work
Sometimes smart money management is all about using the right accounts. There are many types of bank accounts and investment accounts in Canada. Each has a different purpose, so you’ll want to start with a basic understanding of how each works. These include:
High Interest Savings Account. Money in a HISA earns more interest than in a typical bank savings account.
Registered Retirement Savings Plan. An RRSP is a common retirement savings vehicle. You get tax relief when you contribute.
Tax-Free Savings Account. There is no tax relief when you contribute to a TFSA, but any interest earned can be withdrawn tax-free.
Registered Education Savings Plan. Setting up an RESP for a child’s future education costs is a smart move since you could get a 20% match (up to $500) through the Canada Education Savings Grant.
6. Plan for retirement
Good money management means thinking about the future as well as the present. It’s never too early — or too late — to start saving and investing for retirement. Contribute to accounts designed to grow your retirement savings over time by earning compound interest.
You will also want to take advantage of retirement benefits offered by your employer. If they have a retirement plan, you should join as soon as possible because it’s basically free money. Any employee stock ownership plan could also do a lot.
Remember that you don’t need to fund your retirement entirely on your own. Many Canadian employees are eligible for government retirement benefits, such as the Canada Pension Plan and Old Age Security.
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Barry Choi writes for NerdWallet. Email: [email protected]
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