November is Financial Literacy month. Thanks to Glenn Cooke at LifeInsuranceCanada.com, a bunch of Canadian bloggers are lighting up the blogosphere with the Blogging for Financial Literacy campaign by sharing “My best financial tip” and publishing it. The intention is to provide financial information to Canadians in a simple and easy to understand fashion, thus contributing to financial literacy.
Over here at Retire Happy, we have a team of great experts sharing ideas on how to get more success, wealth and happiness. So we thought instead of sharing one tip, we would all share our Best Financial Tips. Here they are!
Financial Tip number 1 from Donna McCaw: Track Your Spending
You can keep a spending diary in your car, your purse, your backpack, or on your device of choice. Keep a record of everything you spend each day, summarize each week, and then look back at the end of the month and see what the patterns, obsessions, and burn factor leakages really are. Do this for a year and you have a map of your spending and can then make a realistic budget for the next year.
You can then set financial goals based on what you actually do spend and not what you think you spend. A friend who did this was amazed when she discovered her coffee habit was costing her what she had planned to put into her TFSA but never really had enough at the end of the month to do so. She now has a travel mug and a TFSA started. Another friend found out that Friday after work was when the credit card got out of control. Rewards for a week of hard work kept him on the debt treadmill. When you find those patterns you can do something about them. Plug the leaks. Every little bit helps.
Related article: Know your spending
Financial Tip number 2 from Cathy Leahy: Use RRSPs to save for retirement
Buy RRSPs if:
- You are paid as an employee and in a higher tax bracket. The higher the tax bracket, the greater the tax savings.
- Your employer is matching your contributions.
- You have credit card debts because you can use the tax refund to pay down debts.
What is an RRSP?
- An RRSP is a savings account to ensure you have some money to supplement any government pensions during your retirement years.
- An RRSP is a tax deferred account. You will pay tax on this money when you withdraw the money as income. You are not being double taxed; you did not pay tax on this income when you received it, nor did you pay tax on the growth of the money.
- The benefit of reduced taxes gives you the ability to save from the extra cash flow.
- You save while you are in your high earning, high tax years.
- If you are self-employed or a low income earner; it may be better to save in a Non-registered account or our new Tax Free Savings Account plans.
- In retirement; if you plan ahead (you can split your income in retirement to stay in a lower tax bracket) you should be paying your income taxes at a lower rate than in your working years.
- The RRSP is NOT the investment: stocks, bonds, mutual funds, segregated funds and GIC’s are the type of investment you can put your money in.
Related article: Online Guide to RRSPs
Financial Tip number 3 from Scott Wallace: Keep your focus on the big picture
When doing retirement plans and reviews with my clients I always stress the big picture. Not to say that we don't discuss what is going on today and how it impacts our plan but we focus more on our end goal, which in most cases is retirement.
We look at the market over time, we look at all the investments (including bonds and GICs) and how they are working together to achieve our future goals. I also point out that for every piece of bad news in the paper, I can find another article that says the exact opposite. We don't know nor can we control what happens in the short term but we can stay focused on the long term. Try to block out the white noise of the day and retirement will be at hand. I had clients retire in the fall of 2008 without any impact on their retirement plans because the clients always focused on the big picture.
Related article: Three steps to a great retirement plan
Financial Tip number 4 from Sarah Yetkiner: Give your money a purpose
It's often a lot more fun to spend money than save it and there are a myriad of ways to spend your hard-earned dollars. Too often, people find that even though they earn enough to cover all their expenses somehow there always seems to be far more month than money. Giving your money a purpose allows you to put a system in place to ensure that your savings goals are met and your bills are paid first and that the money you have left in your account is just for you. It means that unexpected windfalls such as your annual tax return can be used to take you closer to your goals rather than mysteriously disappearing and it allows you to build a “slush” fund so that unexpected expenses don’t push you into debt.
Setting up a system doesn't have to be complicated; the best systems work because they're simple and working within them easily becomes a habit. One of the simplest ways to ensure that you pay yourself first is to set up automatic deductions from your bank account and schedule them to coincide with your pay dates. This way you don’t have to think about saving and bill paying, it happens automatically.
Related article: Knowing the purpose of money
Financial Tip number 5 from Jim Yih: Doing something is way better than doing nothing
For my tip, I am going to cop out a bit and use the same one I used in my post for Balance Junkie.
The fact remains there is no shortage of good financial tips. We live in a world where financial tips are more than abundant. It’s not the tips that make all the difference it’s what you do with the tips that makes all the difference.
If you want to improve your financial literacy, one would think more knowledge is the key. In my opinion, knowledge is the start but action delivers the results. Thus, my best financial tip is that the best tip is the implemented tip.
For the Blogging for financial literacy campaign, you will find lots of ideas and tips on how to improve your finances. If you want to improve your finances, read through the 4 tips above from the writers of Retire Happy. If that’s not enough, there’s also a great list of financial tips over at my other post at Balance junkie – Best Financial Tips.
Read through these tips and start with the tip that resonates most with you. Then figure out how to implement the strategy. That’s the best tip I can give anyone!
Related article: Principles of implementation