To varying degrees, the impact of the current economic downturn will likely be felt by the majority of Canadians over the next year. With the start of a New Year comes an opportunity to take a fresh approach to managing personal finances. This year, there will likely be an even greater need for Canadians to prepare for the unexpected. MasterCard Canada’s SPEND SMART approach provides a list of budgeting basics that consumers should contemplate while planning their finances for the coming year.
SAVE: Start saving now. Take a percentage of your income (5-10%) and put it away in a savings account or another investment vehicle. Set up automatic withdrawal payments so a portion of each pay goes directly into your savings account, automatically saving money before you have a chance to spend it. This concept of paying yourself first ensures that your financial goals come before discretionary spending.
PICK THE RIGHT CARD: Given the variety of choices available,
write down a list of the features you think you need (such as a low annual fee or a low interest rate) and match them against the features you want (such as points toward travel, groceries or gas) and see which card is the best fit.
EXPENSES: Start by keeping track of your expenses over a month and group them into categories. Tracking phone, hydro, etc. can be simplified by preauthorizing payments for monthly bills through your credit card. This will not only ensure bills are paid on time, but your monthly statement also itemizes all your expenses. Using cash can make it difficult to know what was spent on items like a coffee. A credit card is a great way to track all your smaller expenses to the penny.
BUDGET: Sticking to a budget (which should include paying
household bills on time) is one of the toughest and smartest things you can do to make sure you’re on your way to a bright financial future. There are many free budgeting software programs available online. Budget for unexpected expenditures such as car trouble or a broken appliance.
DAILY SAVINGS: You might be surprised how quickly small expenses can add up to big savings. Some of your regular, periodic expenses are luxuries – things like house cleaning, manicures, lawn-care services – do them yourself, or do without. Trade in those luxuries for the big luxury of paying off any debt you might have.
GOALS: Goal setting includes assessing your family’s personal and
financial wants and needs, and then working to make those wants and needs a reality. Identify and record all of your family’s specific financial goals, such as saving for a house, a holiday, paying off debt, or planning retirement.
CREDIT: A credit card can be a valuable tool to handle a
variety of expenses, but only when used responsibly. Few families can
afford to purchase everything they need – much less everything they want – without borrowing from time to time. Whether you borrow through a line of credit or a credit card, credit should be used to enhance your personal financial management, not become an extension of your income. Paying bills on time will help you maintain a good credit rating.
RECEIPTS: Keep your sales receipts for big ticket
purchases so you can monitor your spending and make sure it’s in line with your budget, and so you can compare them to your credit card statement. They are also required for warranties or if you need to exchange or return something.
CARD PAYMENTS: Resolve to pay more than the minimum: Understand how paying more than the minimum can be a critical step in reaching your goals. When less of your money goes to paying interest on your debt and more of it goes toward paying off the actual debt, you will reach your debt reduction goal sooner. Concentrate on paying off the debts that carry the highest interest rates first.
TRACK REVENUE: A key first step to creating a budget is to calculate your monthly, post-tax income. This allows you to match your revenue and expenses to the period in which they occurred and determine if your monthly expenses exceed your monthly income. If you get paid monthly, simply refer to the amount on your pay stub. Track when your income comes in, which can help you schedule payments of monthly expenses.