It's been a challenging year, and it has taken a toll on everyone. The world experienced a major pandemic, something it hasn't experienced for quite some time, and the term "normal" got a new meaning this year. Lives changed around the world, masks became mandatory, vaccines were being prioritized, life choices were being evaluated, and financial planning cemented itself as one of the main aspects of life that needed extra care and attention.
Whether you are a part of millions of people who've become unemployed or someone who faced uncertainty about the future of your workplace, you most likely thought about your personal finances during this exhausting year. Keep in mind, the health of your finances is something that's largely under your control. This article will talk about tips for maintaining your financial health and how to manage money.
Create a Budget
One of the first and most important things to do is understand your incomings and outgoings when it comes to your finances. It is important to know what is a ‘need’ and what is a ‘want’ during these uncertain times. Make sure you have enough funds to cover your needs. You can no longer spend as you used to in these times, and it’s necessary to watch your outgoing spending. Creating a budget will help you understand what is coming in and what is going out each month. To help get you started, review your last three months of spending by viewing your transaction history for your debit and/or credit card. Use this information to create a budget to help adjust your spending where you see fit. In this uncertain time, it is extremely difficult to predict what the future holds. The trick to counteract this uncertainty is to be extremely proactive, think about all possible outcomes, plan your finances and create a budget. To do that, you'll have to ask yourself these questions:
- Do you have any immediate debts (i.e. car payments) to take care of?
- Is there any immediate financial need that needs your attention?
- Do you have your "rainy day" savings which you can access at any point?
- Are there any frivolous expenses in your day/week/month that you can reduce?
- Are your investments going steady?
- Can you temporarily cut back by buying a cheaper brand of your favourite coffee in the supermarket?
- Do you have a steady source of income?
Answering these questions will help you develop a framework that you can use to create a budget that can keep you safe, afloat, and prepared for the future. The key is to be prepared for the worst-case scenario while hoping for the best.
Keep Your Debts Low
It is essential to keep debts to a minimum and avoid taking up any new debt during these uncertain times. It's very tempting to buy that dream car with the fantastic interest rates you keep seeing on TV. Renovating the bathroom can wait so you're not overleveraging yourself and hurting your financial health. Try to make the most out of this situation by calling up your bank and negotiating a better rate on your current loans. It could be the interest rate for your house or just lowering fees for your credit card.
Create an Emergency "Rainy Day" Fund
With uncertainty looming around every corner these days, it’s vital to dedicate some of your money towards an emergency fund. The main reason for this fund is to be available to you immediately in case of unforeseen expenses. It needs to be easily accessible and safe from market volatility. Keeping at least 3-4 months of your income in a savings account is the go-to method for this fund.
Maintain a Good Credit Score by Paying Off Your Credit Card Before the Due Date
Credit cards can be a blessing or a curse depending on how you intend to use them. Some people use credit cards to accumulate rewards and points, while some use them for emergencies. The thumb's rule towards credit cards is to make sure you pay them off entirely before the due date. If, for some reason, you cannot pay it off, at least pay off the minimum amount. Credit card debt is quite stealthy. It can creep on you quickly and burden your entire financial structure with ease. It's pivotal to manage how you use your credit card to stop it from snowballing into substantial debt. You can significantly benefit from paying off your credit card and not having to deal with credit card debt. You can reap the rewards that come with your card, make your travel a bit easier by using those loyalty points to claim airfares, etc. It also helps improve your credit score. Improving your credit score tells your credit union, bank, or future lender(s) that you're trustworthy and pay what you owe on time. An increase in your credit score enables you to get better loans with banks and other lenders.
Talk to Your Advisors
Financial management can be tricky, scary, and challenging, all at the same time. Many people do not have the fortitude, skill, or capacity to sort out the complexities of taxes and investment opportunities. That calls for professional help. A financial advisor can be a great asset to you when it comes to either helping with your current financial situations or helping you out with investment advice. Talk to a mortgage broker, financial advisor, or even your bank for advice on reducing your interest rate on your loan or just reducing debt, even if it’s by a small amount.
Tax is arguably the most complicated of all financial management sectors. If you have a complex tax situation, it’s highly recommended that you seek an accountant or a lawyer to help you navigate this situation. Insurance is one of the necessary safety nets to have in these times. The last thing you’d need is to have unforeseen circumstances catch you off-guard and make you shell out more money. If you’re confused by the number of insurance plans out there and unsure which one is the right one for you, speak to an insurance advisor or any company that offers investments.
Health and wealth go hand in hand – if you aren’t feeling good, you call your doctor. The same works for your finances. If you are feeling uncomfortable or unsure, please reach out to your Consumer or Business Advisor. We are here to help you through these challenging times. If you are not sure who your advisor is, please give us a call at 1.866.446.7001, and we can book an appointment for you.