From a financial standpoint, the new year is a fitting time to “get your house in order” and take a big-picture view. Do you have an ambitious idea for the year ahead? Maybe you are saving for a new home or dreaming of an elaborate vacation. Either way, it will require some thoughtful planning.
To help guide you through the process, we consulted Lana Sanichar, Editor-in-Chief of Canadian MoneySaver Magazine and co-host of the MoneySaver podcast. Read on for her insights and tips to manage your money more effectively this year.
Qualico Communities: What advice do you give to people as they create an annual budget?
Lana Sanichar: Personally, I don’t like to use the word “budget.” It implies restrictions, and no one likes restricting themselves. Instead, I use the term “spending plan,” which means that you’re going to allocate where your money will be spent.
First, identify your short-term and long-term goals. You will also need to be honest about your “needs” versus your “wants.” Then ask yourself: am I earning enough money to meet these goals? As you might expect, one of the first rules of a spending plan is to live within your means – or simply put, to make more money than you spend!
To figure out where your money is going, write down all of your expenses. This will help you understand where your money is going and where you can potentially cut back. In addition to typical expenses such as housing and groceries, do a full-scale brainstorm of other elements such as an emergency fund (to cope with a sudden job loss or health crisis), existing debt, insurance, charitable donations, investments and retirement planning.
Qualico Communities: How can aspiring homeowners save for their dream home?
Lana Sanichar: In order to save, you will need to prioritize! Pay off your debts first, starting with any high-interest credit cards. Next, cut down on expenses that are unnecessary. These might be things like ordering in, eating out, buying high-priced clothing or splurging on “pampering” services like a manicure.
If you have time, you may even consider taking a second job or picking up a side hustle. For these, identify something you love doing (for example, baking, writing, teaching, designing jewelry) and monetize it.
If you have already created a spending plan, you should have an expected amount of money remaining at the end of the month. Transfer this surplus into your savings account so you won’t be able to access it for needless purposes. If you commit to proven saving strategies, you’ll stay on track towards that 20% down payment.
Qualico Communities: What online tools can assist with tracking spending and saving money?
Lana Sanichar: I recommend automating your payments for fixed expenses like cell phones, internet/cable bills and student loan re-payment. Inquire about automated saving features, where a pre-determined amount of money is deducted from your bank account (or from your paycheque) and deposited directly into a savings or investment account.
Your bank’s online portal or app may have a setting to view your spending by category. This will give you a clear picture of your monthly expenditures and might uncover areas where you are overspending unintentionally. As for other smartphone apps, Investopedia has some solid recommendations, including Intuit’s Mint app and YNAB (an acronym for You Need a Budget).
Qualico Communities: How can people avoid the pitfalls of debt and high interest charges?
Lana Sanichar: If you’re a “spender” type, here are some strategies to prevent unwanted debt:
- Know the difference between good debt and bad debt. Good debt has the potential to increase your net worth (like owning a home) whereas bad debt involves borrowing money for a depreciating asset (like a car).
- Focus on paying back higher interest debts like credit cards and student loans first, then move on to lower interest debts like car loans.
- Pay off your credit card(s) in full every month, to avoid interest charges.
- Experiment with a system of paying exclusively with cash for “fun” purchases like gourmet coffee, so you only spend what you have.
So, don’t be afraid to dream big in 2023! With a well-designed plan, a responsible approach and a little creativity, you will be well positioned to meet your goals.
For more financial advice from Lana Sanichar, follow her on Twitter or visit canadianmoneysaver.ca.