It’s Financial Literacy Month and MoneySense is releasing a new cheat sheet on the basics of personal finance for four days this week. On Friday, we’ll have a special Facebook Live testing other magazine editors on their money sense. Tune in live at 3 p.m. on our Facebook page to watch us put them to the test. Follow us and participate if you think you know your stuff.
1. Set a goal
If you’re serious about saving you need to set a goal so you know what you’re saving for. Whether it’s a trip to Japan you hope to take in a few months or saving for retirement, having a very specific goal will help you stay motivated and on track.
2. Track your dollars
The best way to get on track to saving is to spend less than you earn. Tracking your spending—either through a daily journal or an app—can help you do this.
3. Trim spending
Consider trimming expenses. Once you know how much you’re spending monthly, you can decide what areas you’d like to cut back on so you can meet your savings goal.
4. Kill two birds with one stone
For those with low to moderate incomes, paying off debt—including the mortgage—is the best tax-planning you can do. That’s because you don’t pay taxes on the capital gains on your home and there’s no tax on the return you get for getting out of debt.
5. Automate it!
Set up an automatic transfer of funds to a savings to a savings account (or TFSA or RRSP) so that a set amount—say 10% of your gross monthly income that comes off your paycheque automatically. This way, it’s not a question of finding the willpower to save every month. So save first for the goals that you have and then spend what’s left over.
6. Pay less tax
Slash your taxes by making sure you use TFSAs and RRSPs properly. Hint: Generally speaking, if you make less than $50,000 annually, TFSAs work best. If you make more than $50,000, then saving in an RRSP works best.
7. Don’t tempt yourself
Eliminate temptation to control spending. Forget roaming through malls and bookstores where impulse buys are common. Instead, hit the gym or join a book club to stay busy and engaged.
8. Stack it
One strategy to pay off debt quickly is the stacking method. It asks you to list all of your debts in descending order from highest interest rate first on down. This strategy requires you to make minimum payments on all of your debts while directing the remainder of your funds towards the loan with the highest interest rate. Once that one is paid off, you’d do the same to the next highest interest rate debt on your list.
9. Let it snowball
A second method to pay down debt is the debt snowball strategy. This is where you focus on paying your debts from the smallest amount to the highest by making minimum payments on all your debts and putting the remainder towards the one with the lowest amount—such as a credit card, say. Paying off a small debt can lead to a feeling of accomplishment, which is an important motivational factor for those who may feel overwhelmed by their debts.
10. Know your TFSA
The Federal government changed the allowable TFSA contribution amount for 2016 for Canadians age 18 last winter. The limit for 2016 is now $5,500 so try to max it out if you can.
Think you’re ready to test your money sense? Follow us on Facebook and tune in Nov. 18, 2016 at 3 p.m. EST to our Facebook Live video where we will test magazine editors on their personal finance chops. If you know the answer, make sure to chime in and comment! This savings cheat sheet will help you prepare, so get studying.
Other personal finance cheat sheets:
- 8 simple steps to start the home buying process
- 7 steps to make you a smarter investor
- 7 tips to plan a smarter retirement