As newcomers to Canada, one of the things that takes a lot of people by surprise is the cost of living and how much basic things like a visit to a grocery store can cost.
The best way to save money, build your emergency fund, and pay off debt is to follow easy steps on a day-to-day basis. This is essential in the current economic environment of uncertainty and frequent job loss. This is a great way to build financial security for yourself and your family.
So let’s jump into all the easy ways to evaluate your financial situation in the short term and take charge of your financial goals in the long run. I am confident that following these suggestions can lead to small changes and that can help you create a sound Financial Plan for yourself with all the extra savings!
Evaluate Your Essential Monthly Expenses
1. The most important thing is to start by evaluating and documenting how much money goes towards your essential monthly expenses. You could simply list your expenses in a spreadsheet or use a budget tracker. Make sure to cover the gamut of expenses that covers your spending habits i.e.
- Grocery
- Fuel
- Utilities – gas, heating, electricity, Internet, phone – cellphone and landline
- Insurance
- Rent/Mortgage
- Online grocery orders
- Credit card bills
2. Based on your essential purchases over three months or so, you should have a good sense of how much money you need, and that can help define a basic tight budget
Evaluate Your Discretionary Monthly Expenses
3. Next, take a look at your discretionary expenses.
- Gym membership
- Coffee
- Take out
- Online food delivery (Uber Eats, door dash, and such)
- Streaming Subscriptions
- Impulsive Shopping
- Amazon orders
- Meal services
Of course, the discretionary expenses would have a seasonality to them since in the winter months you may spend on specific items. It might be helpful to look at the discretionary expenses for 6 months and calculate an average monthly expense.
4. Between the essential expenses and the discretionary expenses, you should be able to calculate how much your total monthly outflow is.
Evaluate Your Income Sources
5. Now take a look at your total monthly income. This could be from multiple sources.
- Job
- Interest income from investments
- Selling unused items around the house
- Business
- Side Hustle
Understand Lifestyle Creep
6. Once you evaluate the total expense and income situation you will need to assess if there is lifestyle creep. Lifestyle creep is the common pattern of spending more money as you earn more money.
Asking yourself simple questions can help reduce some of those expenses
Do you need two cars? How is the Public Transportation infrastructure where you live? I sold my car 3 years ago and started taking the bus which is not only cheaper but also comfortable. Yes, it does increase the commuting time a little bit but the trade-off in terms of saving the car insurance, maintenance, and fuel payments is too good to ignore.
Do you enjoy frequent take-outs or are you just stuck eating leftovers? can you meal prep and save not just money but also your health? It is a good idea to look at the amount of money being spent on tasks and things that can be done at home by optimizing your time and schedule.
Shop Mindfully
Shopping behavior can be a good indicator of our relationship with money. In the face of constant deals and throw away fashion surrounding us its hard to not get tempted to shop impulsively. Having a structured thinking around how you shop can help you avoid some common pit falls.
7. Are you in the market for a specific item? It may be a good idea to wait for the best deals if your requirement is not urgent. I make a list of things I might want for the first few months of the year while I maximize my savings and come Black Friday , Boxing Day time, I fulfill my shopping list
8. For day-to-day things, consider joining a “Buy Nothing” group in your neighborhood. You will be surprised to see the kind of things people offer on these groups.
9. Thrifting is another shopping style that gets a bad rep but ask experienced thrifters and they will tell you how they score amazing deals at the thrift stores
10. Have an upper limit to how much you use your credit card in a month. Apart from keeping your debt : credit ratio within 30%, it may also help in being able to pay the credit card bill in full each month
11. Use a debit card instead of a credit card. When you see the available balance in the chequing account dip , you will be forced to freeze shopping
12. Set threshold alerts on the chequing account balance. When it dips below a defined level, your financial institution will notify you.
13. Try and make a trip to the grocery store with a planned grocery list. This will help you stick to a budget and also prevent food waste
Know Your High-Interest Debt
14. Take a look at your credit card statements and note the interest rate on it. It may come as a shock that most credit cards have an interest rate between 20-25%.
To put it in simple math, if you buy a $100 pair of shoes on a 25% off deal and pay $75 for it using your card but then take 2 monthly bill cycles to pay your credit card bill in full, you may end up paying as high as $156 towards the shoe which is more than double what you originally paid for the shoes.
So be mindful of how using your credit card can make you pay more for the same items when you don’t pay the full bill every cycle
15. Pay your complete statement balance and not just the minimum payment. When you download the statement and read the fine print, you will be able to see the math around how much time it will take to pay the credit card bill in full if you only paid the minimum payment.
16. Check the interest rates on other high-interest debt products like lines of credit, personal loan
17. If you have too much debt across various high-interest products, consider speaking to your financial institution about a debt consolidation plan.
Identify Children Related Expenses
18. List out all the children related expense which are neither essential nor discretionary. Well, they need to be discussed in order to continue or stop.
- Child care expenses
- Extra curricular/after school activities
- Clothing and Shoes
- Books and Toys
19. Look for the easiest ways to cut out some of the children related expenses, while childcare may be a non negotiable item, spending on clothes, toys and books can be limited.
Utilize the Low Cost and Free Services
20. Be aware of the local recreation centre and the services available at a subsidized rates. Keep up to date on the free programs run by the library. Include these in the family’s monthly schedule to cut out on some of the discetionary expenses such as movies, paid entertainment or eating out
21. If you have older kids, a good option is to hike, walk or bike together which is not only amazing for everyone’s health but also fosters technology free bonding time between the family.
22. If you are a student, the rec center can also help socialize with the peer group including international students in the area.
Park Your Spare Cash Wisely
23. If you look at the interest rate offered by a typical chequing account , it ranges anything between 0.05% to 0.08% however a High Interest Savings Account may offer much higher interest accounts. You could consider moving your spare cash from the chequing account to a high interest savings account so that it works for you.
Understand the Difference Beween Taxable and Tax-Free Investment Accounts
24. While having a high interest savings account for your emergency funds is a smart move, keeping too much money in a deposit account may not be sound financial move in the long run. Do your research on the taxable vs non taxable Investment Products and accounts and park your excess money in a non taxable account. This money could be in myriad investment accounts such as registered education savings plan,registered retirement savings plan , tax-free savings account. Further you can also choose to invest in specific investment products such as Mutual funds, exchange-traded funds
25. At tax filing time, maximize your contributions to get a tax refund from the government
Plan Your Savings Goals
26. If you set tiny achievable goals for yourself to work towards, it will give you small milestones to conquer and celebrate. The most common strategy is to prioritize savings in this order
- Pay off high-interest debt
- Emergency expenses (typically 6 months)
- Down payment for Mortgage
- RESP contribution to get CESG match
- TFSA – for easy access to growing funds
- RRSP – to reduce tax bill
27. Once you meet each of the goals, don’t forget to celebrate the win and knock off the item from your list!
Pay Yourself First
28. Get into the habit of paying yourself first which means putting aside a portion of your income towards your savings as soon as you’re paid. It could be as little at 5% and as much as 50% whatever is possible
Inculcate Discipline for a Monthly Review
29. We tend to pay our credit card bills and not examine our transactions and that’s one of the most common ways people are scammed into recurrent expenses they may not identify. Make it a habit to set apart about 30 minutes at the beginning of each month to generate a quick snapshot of your cash flow for the month
30. On the whole, treat your life and expense as a project which you are managing and very soon you will see your savings and investments grow.
