Learn How to Manage Your Money With These Helpful Tips
Are debts caused by poor money management skills?
Debt can start for a variety of reasons, including bad finance management.
Unexpected expenses could creep up suddenly and crush your budget overnight, leaving debts in their trails.
Something as banal as needing to repair your vehicle can throw a stone into your finance cogs and derail the whole system.
For an increasingly high number of households, debt can occur when the cost of living outweighs the household income.
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Finding yourself suddenly out of a job or without an income for any period of time, even short, can also create a favourable environment for debts.
In short, having debts does not mean you can’t manage your finances.
However, learning how to manage money effectively can help keep your finances in the green.
It is a skill that you can learn and develop at any age, regardless of your financial situation or background.
Financial freedom begins with knowing where your money goes, which is why we’ve compiled these 6 money management tips.
#1. Learn how to create a budget
Your budget allows you to map out different financial plans to achieve your goals, whether these are short- or long-term.
In essence, a budget is a simple comparison of the ‘+’ in your finances versus the ‘-’.
What constitutes a ‘+’?
In budgeting terms, everything that is coming in, such as your wages, bonuses, benefits, etc., is part of your income.
Everything that goes out is noted as’ -’: Rent, insurance, bill, living expenses, etc.
As a rule of thumb, debt occurs in two situations that can be easily identified when you create a budget:
- Firstly, the ‘-’ calculations outgrow the ‘+’. In other words, you are spending more than you earn;
- Secondly, you don’t have sufficient money at the end of the period to cover unexpected costs. This happens in situations where the ‘+’ and ‘-’ almost cancels each other out at the end of the month.
What a reliable budget can do for you is to highlight the areas where you are spending more than you need.
These could be unnecessary costs, such as planning too many night outs, going through shopping frenzy, or buying your lunch every day.
But your expenses could also be caused by waste, such as food waste, consuming more energy than necessary, invisible plumbing leaks, etc.
Your budget helps you gain an overview of your expenses and even compare them against the average costs, which can be useful to tackle your energy costs, for instance.
Ideally, an app on your phone can let you update your budget in seconds while you’re on the go.
By keeping track of your bank accounts, saving accounts and other financial statements, you are guaranteed to get accurate information at all times.
However, there is nothing wrong with a spreadsheet or a pen and paper budget that you update manually at the end of the day.
What matters is to make sure you can track all your ‘+’ and ‘-’ correctly so that you can get the full picture.
The budgeting exercise also helps eliminate bad financial habits!
#2. Keep your finances organized
Budgeting keeps you on your toes about spending and earnings.
But it doesn’t give you the whole picture to keep your finances on track.
Managing your bills and financial statement accordingly can make a big difference.
Indeed, forgetfulness is one of the most common causes of accrued expenses.
Missed payments can increase your costs significantly, for instance.
However, keeping an eye on your due invoices and setting up reminders can easily solve the issue in the future.
Similarly, you can set up automatic payments to cover recurring invoices, so you never have to worry about what you need to pay.
Your budget can help you track what is coming in and out, but it may not help manage balance fluctuations during any given period.
Bounced cheques generate NSF fees that could be avoided if you know when payments are due.
Therefore, to organize your finance, you will need to dedicate a space at home for all relevant documentation.
You can choose to keep everything in files and folders in a cabinet, or you can rely on digital storage instead.
Ideally, you should use the information to record payment dates on a calendar, manage balance fluctuation responsibly, and ensure you prioritize invoices by date and interest fees to reduce costs.
#3. Are you living within your means?
By now, you’ve got an overview of your budget and other financial fluctuations.
This puts you in the ideal position to answer essential questions:
- Are your expenses going out of control?
- Are you finding it hard to make payments on time despite being organized?
If this is the case, you will need to learn to reduce unnecessary spending to blow up your budget.
Living within your means requires the creation of a budget that manages and controls your day-to-day expenses.
In other words, you need to take action to improve your financial situation.
Now’s the time to develop frugal living habits:
- You can curb out your eating out habits. Cooking at home rather than eating out can save you a lot of money without depriving yourself. Preparing a lunch box is another money-saving tip that can make a difference at the end of the month. If you love a cup of coffee, start brewing it at home rather than buying from shops;
- Managing grocery shopping can help you cut down costs and food waste. You can focus on meals that contain ingredients on offer, for instance. Sticking to a list will also reduce unnecessary expenses;
- You can also make a difference to your energy bills with simple tips, such as changing your light bulbs for energy-saving models or turning off devices you don’t use;
- Downsizing your home if you’re a tenant can help cut down costs. As a homeowner, you can also downsize, but it’s a time-demanding process;
The bottom line is to figure out ways to live frugally.
#4. Define your financial goals
You’re regaining enough control of your finances to understand what is going on and how to make a difference to your balance.
However, there is no point in improving your budget if you don’t set any financial goals.
Your financial goals could include:
- Create an emergency fund to cover unexpected expenses and avoid debts;
- Save for significant future expenses, such as buying a home, planning a holiday, etc;
- Become debt-free;
- Retire early.
You can’t always afford your goal immediately.
But the idea is to put it on your budget and allocate the right amount of money to it.
Some goals can also free up money in the future, such as buying a fuel-effective vehicle, paying off debts, etc.
#5. Make a habit of saving money
Paying off debt doesn’t eliminate the risk of future debts.
Because you can never know what tomorrow will bring, it’s always a good idea to plan for an emergency fund.
Saving money may not provide full protection in the event of losing your job or requiring medical treatment, but it can give you enough financial breathing room to bounce back.
Ideally, you want to start by saving enough for 3 months of expenses, which can become a medium- to long-term financial goal.
Additionally, it avoids developing bad habits that will encourage debt.
When you’ve got no savings, you turn to credit to pay unexpected costs, which means you create a debt with no option of replenishing the balance.
#6. No more debt
Debts feed debts.
Unfortunately, paying off your debts when you’ve got little to no financial backup can be challenging.
It’s important to remember that budgeting doesn’t eliminate existing debt.
But it gives you a method to chip away at manageable debt.
However, when the amount you owe is too overwhelming, you need to look for debt management solutions.
You can consult a debt professional who can help you understand your debt relief options.
A non-profit credit counsellor can help negotiate new payment terms and make repayment more manageable.
You can also reach out to your creditors to negotiate a debt settlement plan to pay off only a portion of your debts.
Some debts can also be forgiven with the assistance of a licensed insolvency trustee who can administer a consumer proposal or personal bankruptcy, depending on your situation.
Money management can only get you so far. But if you need a trustee to review your debt repayment options, don’t hesitate to call us (877) 879-4770, 24/7.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?