Want to improve your finances and wondering where to start? We’ve got more than 15 ways that will help you take charge of your financial well-being.
By learning how to improve your finances, you’ll be less stressed about money, make better decisions and be better positioned to achieve your financial goals.
Get your finances on track by following these tips today:
1. Do an audit of your finances
If you want to improve your finances, the first step should be to get a better understanding of where you are financially.
You probably know where your money comes from. For many people, their sole source of monthly income is their salary and it is generally constant, with little variations. But if you have other sources of income, then it’s important to know how much you make from each.
Why is this helpful? At the minimum, it helps you put things in perspective and weigh your time and effort against what you receive as compensation.
Consider an example: If you spend 30 hours on a side hustle that only nets you $100 every month, that works out to only $3.33 per hour. Depending on your finances, spending that extra one hour a day with your family and friends, or on other self development activities could be a better use of your time.
But equally important, you need to know where your money is going. You want to get a good grasp of your typical monthly expenses.
How much do you spend on food at home and eating out, transportation, accommodation, and subscriptions? Are these reasonable given your current income and financial plans?
To start tracking your expenses, you can download your transactions for the past few months into a spreadsheet program. This is my personal preference but it’s a little manual and may not be for everyone. With this approach, you’ll have to manually categorize the transactions into your spending categories.
Alternatively, you can use an app to automatically download your data and categorize them for you.
With this information, you may decide to draw up a monthly budget or focus on one or two categories with the biggest dollar impact (housing and transportation) or easy wins (subscriptions and eating out)
2. Focus on a few spending categories with the highest impact
For many households, housing, transportation, and child-care take up the bulk of their monthly expenses.
With housing, you may not be able to make immediate changes depending on your lease agreements or whether you rent or own, but at least you can come up with a plan. If possible, consider getting a roommate, renting out a space in your house, or moving to a cheaper home.
Do you really need 2 cars? Can you save some money on fuelling and maintenance costs by buying a smaller car? Like housing expenses, reducing your transportation costs will require some big adjustments but they are definitely worth it.
Also, it’s worth considering how where you live affects your monthly transportation expenses. In some instances, moving a little closer to work may increase your rent but save you more in transport costs– both in dollar terms and time saved.
For example, by moving closer to work you may be able to commute by public transit then sell your car and save on the car insurance and maintenance cost. Getting another job closer home may also have the same effect.
Check this post for 3 areas with big rewards you should focus on for big wins in your finances.
Related Post: How Much Car Can I Afford To Buy? (3 Rules of Thumb)
3. Deal with the quick wins
Quick wins generally have a lower dollar amount but can help you build momentum fast. It could be cancelling some monthly subscriptions you don’t really need, reducing the number of times you eat out or order takeout, cutting back on an expensive hobby and so on.
Individually they may be small, but they could add up to a few hundreds when combined.
The goal here isn’t to penny pinch but to strike a good balance between having some fun and keeping your expenses under check.
4. Increase your income
Most times, the focus is on making extra income from other sources, but have you considered how much more you can earn from your current job?
Asking for a raise, especially if you’ve not had any in a while, can be a quick way to increase your income and improve your finances. Of course, it helps if you’re a valued employee and you’re able to communicate your worth to your boss or employer.
And if you work for yourself, explore the possibility of increasing your rates. Move away from selling your time by charging per hour. Charge for the results and value you deliver instead.
For example if you build websites for small businesses, they don’t care how many hours it took you to set up their websites. All they care about is a working website, so charge for the outcome.
Related Post: 11 ways to make money online using your skills and expertise.
5. Diversify your sources of income and earnings
In the aftermath of Covid-19, many people were forced to come to terms with the danger of relying on a single source of income.
To make money from other sources, start with the skills you have or develop new ones.
Here are a few ideas to start with:
- Start a side business that leverages on your existing skills. For example, if you have accounting skills, you can make some extra money helping small businesses with their bookkeeping.
- If there is a topic you’re passionate about, consider starting a blog to share your knowledge. You can get a web hosting plan for less than $5 a month, with free domain name, and there are many resources available to help you start and monetize your blog.
- Create products and sell online through Shopify, Etsy and even Amazon.
- Turn your passion into income by sharing your knowledge using courses, webinars and memberships. You can easily get started without worrying about the technical aspect using a service like Podia.
- Generate passive income that brings in money even while you’re not there by investing your money.
You can get 15% off the cost of registering a business in Canada, and up to $300 in refund, using the Ownr coupon code here.
6. Set goals for the future
Once you have a better understanding of what comes in and goes out, the next step is to set some financial goals for the future.
It’ll be difficult to improve your finances without setting specific financial goals.
You should have both short and long-term goals. Short term goals could be building an emergency fund, saving for a house down payment, setting money aside for a vacation, start saving and investing for retirement and so on.
Long-term goals could be 5, 10 or 15 years away but in most cases, you need to translate them into shorter term goals.
For example, if you have a goal to retire in 10 years, you’ll probably need to start today by calculating how much you need to retire at that age, how much you have today and what to save monthly to get to your target amount and so on.
And most importantly, set goals that are SMART, that is Specific, Measurable, Attainable, Relevant and Time-bound.
Related Post: 7 Smart Must Have Financial Goals To Take Control Of Your Finances
7. Start an Emergency Fund (or top it up)
Simply put, everyone needs an emergency fund for those unexpected life events. These could be the loss of a job, an unforeseen medical expense, car repair and many more events that come with a financial surprise.
If you don’t have an emergency fund, now is the time to start and prioritize it. The general advice is to set aside enough funds to cover 3 to 6 months of your income.
But considering the fallout of the COVID-19 pandemic, a bigger emergency fund may be ideal for some. So even if you have one already, you should do assessment to know if it’s enough.
By building up enough funds that you can quickly draw upon in any emergency, you’ll avoid having to turn to credit cards, payday loans or other higher interest rate loans.
Related Post: Emergency Fund: The Benefits And Tips To Build One Fast
8. Save for Retirement
The earlier you start saving for retirement the better. It helps to have a goal – when you want to retire, how much you need and so on – then translate the goal into shorter term plans, like how much you need to save monthly and your ideal asset allocation.
If you have employer match for your retirement savings at work, then make sure you’re maximizing this benefit. Otherwise, you will be leaving some money on the table.
To start, find out how much you need to retire and if you’re on track. A fee-only financial planner can help you with this and many other areas of your finances.
You should come out of the session with a clearer and more realistic idea of your retirement goals and a working plan to get you there.
Start small even when you have little money to invest and do it regularly.
Automate your savings where possible and use the appropriate tax-advantaged accounts. In Canada, this will mean maximizing your Tax-free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) first, before investing in a non-registered account.
9. Pay down Debt
it is difficult to improve your finances when you are waist-deep in debts.
Commit to paying down your debts, especially the ones with higher interest. As you earn more income and reduce what you spend monthly, divert the extra cash to reducing your debt load.
There are 2 methods for paying down your debt quickly.
- Debt Avalanche: With this method, you make the minimum payments on all your debts, then pay an extra on the debt with the highest interest rate. This way, you’ll pay off the loan earlier and save on the interest. Once the loan is repaid, you move to the next loan with the highest interest rate and repeat the process till you’re out of debts
- Debt Snowball: Here, you also pay the minimum on all the debts. But unlike debt avalanche, the extra cash is applied towards the loan with the lowest amount. The idea is to get a quick win and build some momentum. You may end up paying more interest than the debt avalanche, but you’re more likely to stick to your plans because you can see the progress quickly.
You may also consider debt consolidation, especially if you can get a better interest rate than the existing rates on your loans. This works by consolidating all your credits into a single loan, with one payment made periodically at a single rate.
- 11 Smart Ways To Get Out Of Debt Fast (Plus The Benefits)
- Get Your Debt Under Control and Live a Better Life
10. Use Credit Wisely
Credit is a helpful financial tool, when used responsibly. From buying a house to getting a car, it is an important part of our financial lives.
But you need to move away from using credit to finance an unaffordable lifestyle or living beyond your means. A simple rule with credit cards is, if you can’t pay cash for it then you can’t afford it.
Here are some tips to follow:
- When possible, pay off your full balance every month to avoid accumulating new debts and paying high credit card interest.
- Limit the number of credit cards you have
- Watch your credit utilization ratio. Keep it below 10 percent if possible
- Never miss a payment. Automate the monthly repayments
- How Credit Scores Are Calculated and How To Interpret Them
- 7 Surefire Ways to Improve your Credit Score fast!
11. Monitor your Credit Report and Credit Score
Monitoring your credit scores and credit reports will help you better understand your credit position. By checking your credit scores and reports periodically, you’ll be able to track your successes, flag any error on time and detect fraudulent activities quickly.
If you are planning to get a credit in the future or recovering from past credit issues, checking your credit scores and report every other month will help you stay on track.
You should start by requesting your credit scores and reports today. If you’re in Canada, you can get this in a few minutes.
Related Post: How to get your credit score and credit report for Free
12. Calculate your net worth
Your net worth is simply a figure that represents the value of all your assets minus your liabilities or debts.
It is a better and more accurate measure of your financial well-being and wealth than just focusing on your income. By tracking the figure over time, you can objectively measure if you’re progressing financially and moving closer to your goals.
Your net worth shows where you are today, but more importantly it can help you identify the areas to improve. To improve your net worth over time, you want to either increase your assets or decrease your debts.
13. Educate and Develop yourself
Pick up a new book every now and then and read. Go to the library, read blog posts, attend webinars. The more you read and learn, the more comfortable you’ll be about your finances.
In your professional life, is there a course, training or certification you can take that will increase the value you bring to your job? Go ahead and register for it. Treat the cost as an investment in your development, and not an expense.
A few places to start:
14. Protect yourself and loved ones with Insurance
Disability insurance is a good way to protect yourself and your loved ones if you’re unable to work and earn regular income. Usually, it replaces a certain percentage of your income up to a maximum amount. It can help you cover the long-term loss of earnings that your regular emergency fund can not cover.
In addition, you need a life insurance coverage if your death will leave your family in an adverse financial situation. It pays your beneficiaries a lump sum tax-free death benefit that can be used to ease their financial stress.
If your family may have to move to a cheaper area or your spouse take up additional jobs to support the family, then you should consider protecting them through a term life insurance policy.
Start by calculating how much coverage you need, compare it to any existing insurance coverage you have, and consider covering the shortfall. PolicyAdvisor.com has a tool you can use for this.
Here’s another great one from PolicyMe.
15. Make a Will and review it regularly
Having a Will ensures that when you die, your property will be divided according to your wishes and not based on the laws of your province or state.
If you have some dependents that you want taken care of, including them in your Will ensures they get the needed care and assets they deserve.
The good thing is, you can now create a legally-binding Will online from the comfort of your home in less than 20 minutes.
In Canada, you can use LegalWills and Epilogue Wills to get started in minutes.
Get 20% off with this LegalWills coupon code: WALLET20 or $20 at Epilogue with this discount code: WALLETBLISS20.
And if you have a Will already, review it regularly to make sure it’s up to date especially after major life changes.
Related Post: LegalWills Canada Review: Best Online Will Writing Service
16. Automate your finances
If you’re struggling to stay on track with your financial and saving goals, then automating your finances may help.
This could mean:
- Setting up pre-authorized payments for your bills or adding a credit card to avoid paying late fees or getting your services suspended,
- Transferring funds from your chequing account to a savings account automatically,
- Paying your credit balances through pre-authorized transfers,
- Automating your contributions to your investment accounts; and so on
By automating your expenses, you’ll be saving yourself the time and stress of checking for bills and paying them monthly.
And if you’re really committed to paying yourself first and meeting your goals, then putting your savings and investment on auto-pilot is a good first step.
Related Post: 3 Best Personal Finance Books to take control of your finances
17. Educate yourself on taxes
Tax is one of highest expenses paid by many households, but it is often ignored – perhaps because it’s usually deducted at source and we don’t have to deal with it.
But educating yourself on how taxes work can save you a lot of money. If you only think about your taxes when it’s time to file every year, you may be paying the tax-man more than it’s necessary.
There are legal ways to structure your finances and save some money on taxes. Of course, how much you can save will vary depending on individual circumstances. But commit to spending some time on improving your tax literacy.
There’s some value in working with tax professionals. A good one will save you more money than you could ever pay in fees. So if possible, get some professional tax planning help even if it’s for a few hours.
- 5 ways to reduce your tax
- Tax Checklist For Canadian Tax Filers (Free PDF Download)
- Tax Credit vs Tax Deduction – what is the difference?
18. Involve your Family
We tend to ignore our families when making important financial decisions. Often, this is a mistake.
It may surprise you to know that your wife does not share the same retirement goals with you. Perhaps, she wants a quiet retirement in a small town rather than travel to see the world like you’ve been dreaming about.
In any case, both spouses should be involved in the family finances. Like they say, two heads are better than one.
Should you talk to your kids about finances? Definitely! Make it a habit to discuss important financial decisions with your kids, especially if it’ll affect them. But don’t stress them with the day-to-day finances.
To be honest, some of these strategies require some effort, patience and behavioural changes. They won’t make you rich or wealthy overnight, but they’ll help you improve your finances over time if you stick with them
Getting control of your finance won’t happen by accident. It takes effort, but it will eventually pay off if you keep at it.