With COVID impacting our lives in many ways, it may be time to review changes in our finances that have occurred in the past 12 months.
Money fuels your life, allowing you to live comfortably, have meaningful experiences, and support loved ones.
On the flip side, you may lack the means to afford certain luxuries and accomplish lifelong goals.
Your circumstances and goals will change and evolve over time. Reviewing your finances on a regular basis enables you to adjust your strategies, review your objectives and make sure you’re on track.
Follow these five simple steps to make the most of your money — and start on the path towards your goals.
Step #1: Review your financial picture
The path to financial independence starts with spending less than you make, investing the difference and using credit wisely.
To begin, gather your statements for a complete overview of your current financial situation. Understand how much money you have coming in and what your expenses are. List out things like your rent, groceries and other bills. Next, review your spending patterns — what you spend the most on each month, how much you’ve been saving and/or investing, and how much you’ve been putting towards debt repayment.
Throughout this process, you’ll get an understanding of where you can cut back. Can you spend less on restaurants? Coffee? Subscriptions and services? This process enables you to weed out basic ways to spend less and create more cash flow.
Step #2: Formulate goals
Understanding your priorities and goals is essential to developing a strategy to manage your money. Do you want to eliminate credit card debt or pay off student loans? Have you started to save for retirement?
Looking at what is on the horizon for the new year is a good place to start. It can be easy not to factor in “small” expenses, such as a flight ticket home for a holiday, but these expenses can add up. Thinking both short- and long-term is key when identifying your goals.
Step #3: Create a budget and plan
Now that you have an understanding of your expenses, the areas where you can spend less, and your goals, you can develop a budget and plan accordingly. No matter what the case is, it’s essential to know how you’ll allocate your incoming dollars.
Step #4: Automate your finances
Managing the responsibilities of day-to-day life is time-consuming.
To maximize efficiency, set up automatic payments and transfers to stay aligned with your goals.
For example, you can plan to put a specific amount of your income towards your RRSP, savings account, or debt every month
You might choose to automate your recurring bills like your internet or heat. This ensure that your bills get paid on time, and holds you accountable as you work towards certain goals.
Set automated transfers for dates just after your payday so money is “out of sight, out of mind”.
Step #5: Monitor your finances
Establishing a plan and automating your finances will make it easier to organize all the different aspects of your finances. However, there are other expenses that are not fixed and cannot be automated. For example, spending decisions like entertainment are up to your discretion every month. You might receive a salary bump or a bonus, in which case you might decide to start investing more or pay down debt.
Taking a regular look at your accounts and seeing if you’re on track towards your goals is critical.
Setting up a time every week or every month is one way to make sure you’re consistently reviewing your situation. In addition, monitoring your finances can help you identify any credit card fraud or merchant mistakes in a timely manner.
Managing your finances is an ongoing process. Your strategies, goals and plan may look different as you move through new life chapters, but you can still take steps today to plan for the future you envision.
Written by Dan Allen, CFP, MFA, EPC. Allen is a Senior Financial Advisor – Manulife Securities Incorporated; Retirement Income & Protection Specialist; Dan Allen Financial Inc.
