A brand new year is upon us and many Canadians will be including financial goals as part of their new year’s resolutions. This is laudable, but sadly, very few will actually turn those good intentions into reality.
I believe the problem – and solution – may lie in how we approach the “Four Money Basics.” As complicated as our financial lives might seem, all of our choices and decisions fit squarely into how we manage, save, grow and protect our money. By taking a close look at these four simple areas and making necessary changes, we can go a long way towards realizing our money-related goals.
Using the lens of the Four Money Basics also ensures that you are looking at the big picture, not just a part of your financial life. While you may need to focus a bit more on one or two of the Four Money Basics depending on your situation and life stage, it’s a good idea to include each area in your overall planning. Your financial plan is one integrated whole so your approach and success in one of the Money Basics will impact your success in the others.
The first step is to ask yourself some direct questions about your finances and then act on those answers. Below are the key questions to focus on for each Money Basic.
Respond yes or no to each question to determine how you’re doing in each of the four areas:
1. Managing your money
Do you spend less than you make?
Do you pay off all the balance on your credit card each month?
Would you be okay if you missed one paycheque?
2. Saving your money
Do you have different pots of money set aside for your regular expenses?
If you’re planning a major purchase, are you ready to buy?
Do you regularly put aside money for the future?
3. Growing your money?
If you own a home, are you paying it off as fast as you’d like?
Do you feel you have a good understanding of your investments?
Are your investments working hard enough?
4. Protecting your money
Do you have coverage in case you aren’t able to work?
Do you have protection for your family and belongings?
Is your lifestyle the same as it was last year?
Ideally, you answered “yes” to all these questions and, if so, congratulations – you seem to have your Four Money Basics well under control! But for the other 95 per cent of us, some simple steps can make a difference in moving these responses from “no” to “yes.”
It begins with finding out what you can change. For example, if you are spending more than you make, find one regular expense you can reduce or eliminate and set aside a regular amount from each pay cheque to deposit into your savings account. If saving is a challenge, adopt a “divide and conquer” strategy by splitting major expenses over 12 months and setting aside the monthly amount required. It may take longer to reach your savings goal, but you’ll feel much less pressure on your budget.
In addition, choosing the right financial product can often make a big difference. In most cases, by looking at the responses to each of the Four Money Basics questions, your financial needs can be matched to a more helpful product. So, if you’re finding it challenging to manage and save your money, it doesn’t make sense to pay $200 a year in banking fees when you can sign up for a free or low-fee chequing account. Or, if debt is an issue, you’ll want this consolidated under a low interest loan.
The key lesson here is that improving your finances in the new year doesn’t have to be a daunting and complicated task. Get started by looking at how you are doing in each of the Four Money Basics. Write down things you can change and begin to act on them. Or, if you need some extra motivation, contact your financial institution – remember we’re there to help!
I wish you a happy new year of financial well-being.
Kathy McGarrigle is chief operating officer for Coast Capital Savings.
