Good money habits Archives - Page 2 of 3

June 15, 2021 Good money habits, investing

Save For Retirement

You’ve likely been told over and over again – you should start saving for retirement! And that sounds great to you – but how do you get started?

Set up automatic savings

The key to making sure you save for retirement is to set up automatic savings. This means that you have a fixed amount coming out of your bank account every time you get paid (or on another schedule that works for you). By having your retirement savings go directly out of your account into a retirement account, you avoid the temptation of spending all your money! Plus you don’t have to worry about remembering to put money aside constantly – it’s all set up to be done automatically!

Try to aim for putting at least 10 percent aside of what you’re making in your retirement savings. If you can put aside more, great! If you can’t put aside that much, that’s OK too – the important thing is that you’re saving for your retirement.

Saving For Retirement With An RRSP

Traditionally, most people think of RRSPs when it comes to retirement. Registered Retirement Savings Plans or RRSPs came into existence in 1957, as a way to help encourage Canadians to save for retirement. They work as follows:

You can put a certain amount, up to a designated maximum, into your RRSP each year.
Any contribution room you don’t use rolls over to the next year, so you don’t lose it.
You can deduct RRSP contributions to reduce the amount of taxes you owe.
All gains in your RRSP are tax-free until you take the money out of your RRSP.

While it can benefit anyone to open and contribute to an RRSP, they are most beneficial to high-wage earners. High-wages earners benefit more from the tax deductions up front, and being taxed on their gains later in life when they’ve retired and are in a lower tax bracket.

Saving For Retirement With A TFSA

TFSAs are a much more recent way to save for retirement. TFSA is short for Tax-Free Savings Account and they’ve been around since 2009. This is how TFSAs work:

You can put a certain amount, up to a designated maximum, into your TFSA each year. Unlike an RRSP, the TFSA maximum is the same for everyone.
Any contribution room you don’t use rolls over to the next year, so you don’t lose it.
All gains in your TFSA are tax-free – you never have to pay taxes on them, even when you withdraw them!

If you have a lower income, then TFSAs may be better suited for you for retirement than RRSPs. You may not need the tax deductions an RRSP offers, and then your entire retirement income will be tax-free!

The Takeaway

There are two key things to take away from this post. One is that automated savings is the best way to keep on track with saving for retirement. The other is that it’s best to save for retirement in a manner that helps you cut back on the amount of taxes you have to pay – whether that’s via a TFSA or an RRSP or both!

June 1, 2021 Good money habits, investing

Diversify Your Portfolio

Welcome to step 4 of managing your money! So far, you’ve set up a budget, tracked your expenses, and gotten used to the idea of investing.

Now you’re ready to move forward with investing, you need to get comfortable with the idea of a diverse portfolio – that is, one that contains a variety of investments.

Why do I need a diverse portfolio?

It’s important for you to have a diverse portfolio so can balance risk with return. The amount of risk you’re willing to accept in exchange for getting potentially higher returns will depend both on your personality and what stage of life you’re at. When you’re younger and have more time to recover, you’re more likely to accept higher risks than when you’re nearing retirement age and want to protect your nest egg.

A diversified investment portfolio is the best way to ensure you can count on your investments to provide stable returns and income. Generally, when stocks are doing well, bonds tend to offer lower returns. And vice versa – when stocks are underperforming, bonds offer a better return. So you’re protected both ways!

What exactly does a diverse portfolio contain?

A diverse portfolio contains a little bit of everything. It can be tempting to want to buy only bonds so you have a guaranteed return or to buy only stocks with the hope of a big payoff. But if you only buy bonds, you’ll have a very low return on investment, and if you only buy stocks, you risk losing everything if the stock market has a serious dip.

That’s why diversity is so important! Buying a variety of investments – individual stocks, bonds, ETFs, and mutual funds is the best way to ensure you have a diverse portfolio.

So how do I create a diversified portfolio?

You may be panicking, thinking that you have no idea how to pick all of these different types of investments. That’s why ETFs (short for exchange-traded funds) and mutual funds exist! They contain a large variety of bonds and stocks, so you don’t have to shop around trying to buy a whole bunch of specific investments just to get a diversified portfolio.

Whether you work with a financial advisor or robo advisor, you need to consider how much risk you’re willing to take, what kind of investment returns you’re looking for, and how long you plan to invest for. More and more places are offering “set” portfolios designed to fit a specific age and stage in life – so you’d buy one type of portfolio in your 20’s and then gradually move towards another portfolio as you age.

The Takeaway

The notion of diversifying your portfolio can seem overwhelming, but it doesn’t have to be. No one expects to you to pick from hundreds of different investments – instead, a professional advisor or robo advisor can gather some basic information about you and then make suitable recommendations. So don’t let fear keep you from getting started!

May 15, 2021 Good money habits, investing

Start Investing

Congratulations! You’ve made it to step 3 of managing money. You’ve already created a budget and started tracking your expenses, and now you’re ready to begin investing.

Why do I need to start investing?

Once you have enough cash to cover your everyday needs, as well as to start putting money in an emergency fund (which shouldn’t be invested as you need quick access to it!), it’s essential to start investing to help build yourself a solid financial future.

Most savings accounts pay very little interest. You can open a high-interest savings account to put your emergency fund in (check into any fees first – no point in losing more in costs than you earn in interest), but that type of account won’t cut it for any other kind of savings.

Investing appropriately can help you earn money over time through the magic of compound interest! While returns vary, you’ll undoubtedly make more via the stock market than you ever could via a savings account.

What kind of investments should I get into?

What kind of investments you should get into will vary. The most common types are bonds, stocks, ETFs, and Mutual Funds.

Both mutual funds and ETFs hold portfolios of stocks and bonds, but ETFs trade on exchanges (like stocks) and tend to have lower fees. Stocks are generally considered the riskiest investments, with bonds being the least risky, guaranteeing an interest payment. ETFs and mutual funds tend to fall in the medium-risk category.

The key is diversity! You don’t want just to buy a few stocks or a few bonds. ETFs and mutual funds are good at spreading the risk out, so even if one investment is going down, another one may be going up. Your goal should be to minimize your risk and maximize your returns!

I’ll talk more about diversifying your portfolio in my next post.

How do I get started investing?

There’s the “traditional” way to get started – where you speak to a financial advisor, talk to them about your goals, and then put together an investment plan for you. The problem with this approach is that it can be pricey, as you pay higher fees, and you may get pushed into investments that aren’t necessarily right for you. If you really want a hands-on approach, ask friends and family for recommendations and make sure you’re clear on what fees you’ll pay your advisor.

The other option is a robo advisor or online broker. They tend to offer reasonably low fees, and you can select a portfolio that suits your investment goals, risk tolerance, the required rate of return. Some brokers offer only set portfolios, whereas others may provide more customized ones.

The Takeaway

This may seem overwhelming, but it doesn’t have to be. And the great thing is – once you’ve got your investments all set up, your hard work is done!

May 1, 2021 Good money habits

Understanding and Tracking Your Expenses

Welcome to my second post in the Managing Your Money series. Now that you’ve taken step 1, making a budget, it’s time to start tracking your expenses.

Why do I need to track my expenses?

To be able to manage your money well, you need to know exactly what you’re spending it on! You’ve probably found yourselves reaching the end of a week or a month and wondering exactly where all your money went. When you start tracking your expenses, you’ll have a better idea of exactly what you’re spending your money on – and where you can cut back to save more!

What’s the best way to track my expenses?

The best way to track your expenses is whatever way works for you. Here are some ideas to get you started:

Write them down at the end of each day.
Put everything on debit or credit so you have an online record.
Keep all your receipts and then enter the amounts in a spreadsheet.
Use an app to keep track of your spending.

If you start trying to keep track of your expenses one way and it doesn’t work, don’t just give up. Keep trying until you find a method that works for you!

What kind of expenses do I need to track?

The point of tracking your expenses is to get as accurate a picture as possible of what you’re spending your money on. So it’s important to track every single expense!

Here are some sample expenses:

Common expenses such as a mortgage or rent, utilities, groceries and eating out, gas, and insurance.
Less common expenses such as home or car repairs, gifts, vacations, and clothes.
Don’t forget to track things that are auto-deducted such as gym subscriptions, streaming services, or meal-kit delivery.

Tracking all of your expenses will help you get a better handle on where you’re spending your money.

The Takeaway

Tracking your expenses isn’t that exciting – it’s certainly not as much fun as spending your money! But it’s a critical step in helping you get a better handle on how you’re spending your money. Let me know what your biggest surprise was when you started tracking your expenses in the comments!

April 15, 2021 Good money habits

Create a monthly budget

One of the first steps in taking control of your money is to put together a monthly budget. A budget can help you save money and get a handle on your expenses.

Your budget should be broken up into the following sections:

Fixed costs
Short-term savings
Long-term savings
Fun money!

Fixed Costs

Your fixed costs are amounts that don’t change from month-to-month such as your mortgage or rent, a car loan, and your cell phone bill.

Other costs vary each month but will generally average out to be the same, such as your grocery bills and utilities. If you’re looking for somewhere to save on fixed costs, groceries are one of the few areas of you can you have a little wiggle room.

Fixed costs will likely take up to 50 to 60 percent of your income.

Short-Term Savings

Short-term savings are exactly what they sound like – money you’re putting aside to cover big expenses shortly. This money can be used to cover everything from vacations to a new laptop. The key is that they are an extra item you want or need, and you should save up for them.

Not expecting to make any major purchases in the next few months? That’s great – but it doesn’t mean you should avoid putting money into short-term savings. Any money you don’t use for expected purchases can be used to help build your emergency fund in case you suddenly lose your source of income.

For short-term savings, you should be putting aside 5 to 10 percent of your income.

Long-Term Savings

Long-term savings are the opposite of short-term savings – this is money that you’re putting aside for the future. Whether that’s a down payment for your house, your retirement, or your children’s education, it’s important to make sure you put aside money for your long-term goals.

It can be easy to let this part of your savings go, as the goal and rewards aren’t immediate. But unless you have a real financial crisis, it’s important to make sure you save up for your long-term goals.

Long-term savings should be 10 percent of your income.

Fun Money!

Now we get to the fun part. Part of the reason we like to earn money is that it buys us things we enjoy! Whether that’s dining out, getting the latest video game, or buying some new clothes, it’s important to spend some of your hard-earned money on something pleasurable.

Spending money on things you enjoy shouldn’t be seen as a luxury but as a necessary investment in your physical and mental well-being.

You can spend anywhere between 20 to 35 percent of your income on the fun stuff. This is an area where you definitely have some wiggle room, so if you end up with an unexpected expense or want to boost your savings, you can temporarily cut back in this area.

The Takeaway

Having a budget may seem constraining, but it really isn’t. Having set percentages to spend your money on, you actually give yourself the freedom to spend money on something pleasurable without feeling guilty! And you know that you’re still saving money for your long and short-term goals.

April 1, 2021 Good money habits

Managing Your Money – A Series

I’m putting together an end-to-end series on everything you need to know to manage your money. I’ll cover the following topics:

This may seem overwhelming – but you don’t have to do everything all together at once! I’ll break it down and cover one topic in each post.

March 15, 2021 Good money habits, investing

How do you get your personal finance advice?

There are so many ways to learn about personal finance these days – there are TV shows on it, books, online articles, and more! Here are some of the many ways you can get advice:

Podcasts

There are lots of podcasts of all different aspects of personal finance – from how to get out of debt to how to invest. If you’re the kind of person who wants to learn, but doesn’t have a ton of time to sit and read, then podcasts may be a great choice for you.

Personal Blogs

Personal finance is definitely a hot topic for personal blogs, and some have amassed quite a following! Some of them are from people who have professional training, whereas others are like me and just want to share the knowledge they have.

Books

I haven’t bought a ton of personal finance books, but I did enjoy “The Wealthy Barber” by Dave Chilton and “Millionaire Teacher” by Andrew Hallam. No links because I recommend you support a local bookstore or try your local library! They are both great books that explain a variety of personal finance issues in an easy-to-understand way.

TV Shows

As my husband can attest, I used to be addicted to “Til Debt Do Us Part” with Gail Vaz-Oxlade. She’s written a number of books as well and also hosted two other money-based TV Shows. She’s blunt and funny. Her shows give you a chance to watch how other people re-examine their spending habits and may encourage you to do the same thing yourself!

What’s your favourite way to learn about personal finance?

Do you like to settle down with a good book? Or perhaps you have a favourite blogger that you’ve read every post of? Tell me about it in the comments!

January 1, 2021 Good money habits, Holidays, Saving money

Why our New Year’s resolutions will be less expensive this year

Normally, one of the biggest things people pledge to do for New Year’s is to start eating right and exercising. So they sign up for expensive gym memberships and fancy weight loss programs and then frequently stop committing to both within a month or two.

The good news is that we can’t waste our money on stuff we won’t use this time. Most of Canada is in lockdown in one form or another, so you can’t sign up for the gym, and you can’t go buy expensive shakes and other weight-loss concoctions you really don’t need.

The good news is that if you do really want to lose weight and exercise you can still do it – just without spending a lot of extra money.

Exercise

The easiest exercise to do is right outside your front door – just put on your boots and go! If you don’t feel safe going out because it’s icy, you can walk in place in your house, or go up and down the stairs.

And there are tons of Youtube videos and programs that show you how to use your body weight to do strength training.

Always remember, the right exercise program is one you stick to! Being able to exercise from the comfort of your own home with objects you have around the house (like soup cans!) makes it easier to stick to being active. Even if you start with a few minutes a day, it’s a step in the right direction!

Eating Right

Like exercise – it’s not that we don’t know how to eat right – we’re just not too great about sticking to it. Eating properly doesn’t have to be expensive – it just takes a bit of planning. Unless you’re really good at it, sticking to a type of eating that cuts out one or more types of food entirely (e.g. carbs) may not be a great route. It’s better to plan a balanced diet with some room for treats.

There are also lots of free calorie counting apps you can use to quickly and easily see what your calorie intake should be if you want to lose weight. You can also use the app to log your calories each day to keep on track.

The Takeaway

You can still achieve your New Year’s goals in regards to exercise and eating right – without spending a fortune. Dust off some fitness equipment you already own or put on some boots and go outside! You can choose in seasons vegetables and cheap protein (like beans) to make filling and healthy meals – batch cooking is a great way to save time and money.

How do you plan to eat well or exercise without spending a lot?

October 1, 2020 Good money habits, investing, Kids

The best money decisions I’ve made – Part 3

If you’d like to know more about some of the best money decisions I’ve made, please check out Part 1 and Part 2 of this series. This will be the last post in this series for now.

Here are two more of the best financial decisions I’ve made:

Switch to having my investments managed by a robo-advisor.
Give my son hand-me-down toys and clothes.

1. Switch my from an investment advisor to a robo-advisor

I’m not going to lie – I still have some of my investments with banks for various reasons. But I have complete control over them – and no one is calling me up a few times a year to remind me that I need to make a switch in investments (without explaining why!) or trying to sell me additional products I don’t want.

With a robo-advisor, you can “set it and forget it”. I got tired of getting reams of statements I didn’t understand and didn’t want – and if I did ask questions, my advisor would take forever to answer and then not really answer me at all. Plus robo-advisors have much lower fees – so over the long term, you’ll get more of the money your investments actually earned instead of it going into someone else’s pocket!

2. Give my son hand-me-down toys and clothes

I’ve talked before on this blog about how to save money on clothes for your kids. I’m lucky that he still has very little interest in what he wears – although he is big enough now that clothes for birthdays and Christmas isn’t going to cut it – he wants toys! But the good news on this front is I’ve been lucky enough to get bags of clothes and even some toys in good shape from various people.

This has been particularly helpful during the pandemic. I didn’t have to order online or brave the few stores that were open to buy him new clothes – I just went to my basement to open up the bags that were there and had a whole new wardrobe!

In addition, my son has a second-hard store near his school. He was initially interested in it because they had Halloween stuff outside – so he called it “The Halloween Store”. When I finally took him he was pleasantly surprised that it had more than just Halloween stuff! It’s a great opportunity to allow him to pick his own toys at a reasonable price. As well – I tend to limit him to one toy per visit so he’s learning to make decisions about what he does and doesn’t really want!

The Takeaway

It can be a lot of effort to make a new money habit – like moving from an investment advisor to a robo-advisor – but it’s well worth it in the end. You can also help your kids get started early by making them comfortable having everything not be brand new – and help them learn how to make money decisions early on.

What’s a good money decision you’ve made regarding your finances or your kids?

September 15, 2020 Good money habits

The best money decisions I’ve ever made – Part 2

A few weeks ago I did Part 1 in this series. I talked about some of the smartest financial decisions I made up to university. Now I’m going to talk about some of the decisions I made after finishing university.

Here are three more of the best money decisions I’ve ever made:

Rent a basement apartment the first few months out of school.
Not live beyond my salary.
Buy a house below the amount I was approved for.

1. Rent a basement apartment the first few months out of school

I was lucky enough to graduate with a job in hand (the last place I did a co-op term for!), so I knew where I was going to be working. In order to not have to rush into moving all my stuff right after I finished school, as well as save up some money for first and last month’s rent, I rented a basement apartment for three months before I moved into my new apartment. I was lucky in that I had a nice landlady and I was so used to moving that one more move didn’t really phase me – and it helped me save up most of my paycheck for several months.

2. Not live beyond my salary

I graduated with a pretty good salary – not a crazy high salary but certainly enough that I could have splurged way more than I did. Instead, I immediately started putting money into my retirement savings plan, as well as some non-registered accounts. Where I worked wasn’t downtown, so going out to lunch wasn’t really an option – so that helped me save too. I certainly didn’t deny myself the odd treat (and I definitely did a little travelling the first few years after I graduated), but I also made sure not to live beyond my means.

3. Buy a house below the amount I was approved for

When my husband and I were ready to move out of our apartment and look for a house, one of the first things we did was get pre-approved for a mortgage. We could have definitely bought a more expensive house than we did, but we choose to get something in a more affordable range. I’m not going to lie – while the house itself and the location was fine – I hated sharing a wall (we were in a semi-detached house) and living on a corner because it was a high-traffic area. So if I had a chance to make this decision again, I’d likely have spent more in the interest of peace and quiet!

The Takeaway

These good money decisions have helped me a lot. It meant when I ran into some unexpected costs later in life, I had enough money saved up that I could still afford to pay for them without going into debt. It also meant I wasn’t “house poor”. I definitely cut back on travelling once my husband and I bought the house – but we could still afford to eat out and go to the movies – the fun things in life!

What’s a good financial decision you’ve made in regards to spending below your means or buying a house?