Observing Financial Literacy Week is a great idea. But there are 51 other weeks in a year where you should also be concentrating on how to reduce costs, save money, and improve your investments for the future. Here are five areas to focus on.
1. Minimize your cost of borrowing
It’s almost criminal the interest rates some credit card issuers charge for outstanding balances. With the federal Bank of Canada holding its benchmark interest rate steady at 1 percent, it’s a wonder how they can justify charging 30 times that amount – or more.
But what’s really astounding is how many people pay that amount by carrying debt on their high-interest credit cards. You should always pay your credit card bills in full to avoid these charges. If money’s a little tight occasionally, use a low-interest line of credit to pay the bill(s) off, starting with the most expensive debt first.
If this becomes a recurring problem, consider setting up a meeting with a credit counselor. Then grab a pair of scissors and chop up those overcharging charge cards.
2. Reduce or eliminate punitive fees and charges
There are numerous reasons why you should always pay your bills on time, including preserving your credit rating and to avoid having debt collectors hounding you. But most importantly on a day-to-day basis is to avoid the penalties – often on top of interest – that utilities and other companies you receive regular bills from will charge. (As with credit cards, you should establish a line of credit to have funds available for those times when your money’s in short supply.)
And rather than squandering any of the minimal interest your bank account earns every month – and likely more – on various fees for withdrawal, ATM use, Interac usage, writing a cheque, and so forth, shop around for a no-fee account or one that offers a reasonable flat-rate that would cover your typical banking activities.
3. Invest for the future
Every year, as winter winds down towards spring, the ads for Registered Retirement Savings Plans (RRSPs) bloom. And with good reason. The financial institutions obviously want your business. But Canadians are keen to reap the tax-savings rewards of planning for their future: every dollar invested in an RSP is deducted from your annual income when calculating the income tax you owe (provided you don’t exceed your personal limit.)
But while RSPs are the most popular and well-known means of saving for the future, there are other options. A newer federal program is the Tax-Free Savings Account (TFSA). These operate similar to an RSP but, instead of upfront tax savings, any income they earn is tax-free.
Of course, both can be effected by volatile stock markets. For a truly balanced portfolio, you should also consider more stable investments like bonds and Guaranteed Investment Certificates (GICs).
Finally, if you have children, open a Registered Education Savings Plan (RESP) account to save for their post-secondary education and, regardless of income level, you could be eligible for up to $500 a year in grants. (Lower income families are also eligible for additional Canada Learning Bond grants.)
4. Track your expenses to develop – and follow – a workable budget
It’s impossible to save for the future without knowing how much of your income you’re actually spending. If you haven’t already done so, create a personal expense tracking plan. The more detailed the better. After just a few weeks – better yet, months – you’ll quickly see areas where you could realistically cut back on expenditures, and put that money into savings. While it can seem cumbersome initially, once you get in the habit – and reap the benefits of seeing your savings grow – it’ll become second nature.
5. Pay attention to the news
While you don’t need to comprehend all the details of the scrolling business ticker at the bottom of your favourite 24-hour news channel’s screen, or analyze the daily ups and downs of gold and the dollar, you should be conscious of how big-picture financial events can impact your finances.
A global decline in construction will ultimately lead to a decline in the value of those mineral and resource stocks you’ve invested heavily in. Closer to home, a major new development or infrastructure program can increase nearby property values. Good if you’re looking too sell; bad if it means your property taxes will go up.
And here’s a tip for anyone with a variable rate mortgage. That influential 1 percent Bank of Canada rate will inevitably go up, and the various institutions’ lending rates – including for variable mortgages – with it. If you’re a risk-averse person when it comes to investing, you should monitor those regular Bank of Canada announcements and have a plan for how high you’re willing to let it go before you lock in to a fixed-rate mortgage.