In a 2018 survey1 on financial health and wellness conducted by Desjardins with approximately 3,000 Canadians, around half of respondents said their financial situation was a source of stress. The most commonly cited concerns included:
- Financial obligations and excessive debt
- Not having an emergency fund to cover unexpected expenses
- Being able to save for retirement
To protect your financial health and reduce money-related stress, you need a clear understanding of your financial situation so you can create an action plan. If you want to worry less about finances and enjoy life with greater peace of mind, there’s no better tool than an effective budget.
The role of the budget
Creating a budget lets you visualize your income and upcoming expenses. Regularly reviewing your budget helps you understand where your money is going.
Your budget should help you manage your personal finances effectively according to your current and future needs. It should allow you to determine which expenses are truly necessary, helping you to prioritize your savings.
There are many applications available that can help you keep track of all this information, like the This link will open in a new tab. My Budget management tool offered to Desjardins members.
Once you’ve set up the parameters and developed the habit of using the tool, you’ll find it easier to apply these tips and tricks and make your budget work for you.
1. Reduce high-interest debt
To maintain a healthy budget balance, pay particular attention to your debts, especially if they come with a high interest rate. Credit cards have become a part of our busy everyday lives, used for everything from online purchases to security deposits, telephone reservations and rapid payments. But it’s easy to lose track of how much you spend, which can have a negative impact on your financial capacity. Debt is a part of life, but it’s important to keep your borrowing under control.
If you’re concerned about your financial liabilities, talk to an advisor. They’ll help you find effective strategies that work for your situation.
2. Build up an emergency fund
No one can predict the future and completely avoid the unexpected, but you’ll have greater peace of mind if you build up an emergency fund equal to three months of expenses. That way, if an unexpected expense arises, you’ll avoid going into debt and you’ll stay in control of your finances, all without compromising your budget.
Try to keep your emergency fund in a separate bank account and choose investments you can draw on quickly.
3. Set objectives
Whatever your goals are, your financial capacity should always guide your decisions. For some people, their kids’ education is a bigger priority than retirement planning, while others would benefit from paying off their mortgage or injecting savings into their RRSP—all while planning for the vacation of a lifetime.
Setting unrealistic goals, estimating incorrectly, lacking discipline and failing to follow your budget can all hold you back from achieving your objectives. Be prepared to modify your plans so you don’t harm your financial situation.
4. Pay yourself first by automating your savings
You’ll have an easier time meeting your financial goals if you commit to paying yourself first. The easiest way to do this is to set aside a portion of your income using automatic payments. Invest the available amount as soon as you can and increase it gradually.
5. Review your budget
Get into the habit of reviewing your budget every year, and take advantage of salary increases or bonuses to pay off debts and increase your savings.
With a bit of motivation and discipline, you’ll come much closer to meeting your financial goals.
1 Financial health and wellness survey conducted in May 2018 by SOM and WMLHI’s Marketing Solutions department with 2,964 Canadians aged 18 to 75. Maximum margin of error: 2.4%