For some folks, financial struggles happen because they don’t make enough money. But for most of us, the issue is spending more than we earn. Being wise with our wonga can help us take control and start building wealth.
If you think the problem is your income, let me share my experience. When I started investing, I was a single parent, making $42,000 a year and trying to work through the financial (and emotional) ramifications of divorce. I ended up working three jobs so I could afford to take my kid to soccer and keep the car on the road. Yes, we bought our clothes at the thrift store and didn’t have any money for travel or luxuries, but my daughter had clothes on her back and food in her belly and I focused on the long-term goal.
I started saving just $50 a month into a TFSA and a RESP as that’s all I could afford. My rent was eating up over 60% of my monthly income. It is hard, but it is possible to manage on a low income. I’m going to share a few ways to manage your money better so you can live within your means and even save to invest. Are you ready to get your money mindset hat on?
1. Track Your Spending
To control your money, you first need to know where it’s going. Traditional budgeting can be tedious, so try my multiple bank account method instead.
Figure out what you spend in a year, and open as many bank accounts as you can. At one stage I had nine savings accounts as well as my regular chequing account:
- Chequing
- Regular saving
- Transport
- Travel
- Me & wellness
- Retirement
- Kiddo expenses
- Gifts
- Estuff
- Emergency fund
Every time you get paid put an estimated amount of cash for each category into the corresponding account. If you run out of money before covering all categories, adjust until your essentials are covered.
Spend only what’s in the accounts, on the right items. It’s so wonderful knowing your car needs a service and you have the money in your account to cover it. After a couple of paycheques, you’ll have a clear picture of your spending and where you can cut back. You can also continue with this method and automate the money transfers into the right accounts!
2. Control Impulse Purchases
Many of us are impulsive and tend to buy things without much thought. Limit impulse buying by asking yourself if you really need an item before purchasing it, especially if it costs more than $50. Focus on necessities and avoid frivolous spending. Try putting off the purchase for 48 hours and see if you still really want that item.
3. Use Credit Cards Wisely
Credit cards can be useful but often lead to overspending. Use cash or debit card while you’re building financial discipline. If you must use a credit card, pay off the balance each month to avoid interest charges.
4. Stop Trying to Impress Others
Don’t spend money to impress others. Focus on what makes YOU happy, not what you think will impress others. The Joneses are not happier because they have a brand new car every year. Living simply can save you a lot of money and stress and I’m not gonna lie, it can also bring on a little smugness ;).
5. Identify Budget-Draining Habits
Look for habits that drain your budget. Whether it’s dining out too often or spending on unnecessary luxuries, identifying and cutting back on these can save you a lot of money.
6. Prioritize Investing Over Spending
Instead of putting money in a low-interest savings account, invest in assets that grow your wealth. Learning to invest wisely can yield better returns than just saving. This is a biggie. Look at sites such as Questrade to start building your investment knowledge. https://www.questrade.com/learning
Also, read voraciously, never stop reading and learning.
7. Start Investing Now
Investing in great companies is a smart way to grow your money. Well-run businesses can generate significant returns on your investment. The sooner you start, the better the compounding effect will be over time. If you don’t know who to invest in, just invest in everyone! Exchange-traded funds allow you to invest in multiple companies in one index fund that replicate that index. E.g. The Vanguard FTSE Canada All Cap Index (VCN) tracks a broad Canadian equity index, and the Vanguard US Total Market Index (VUN) tracks a broad US equity index. By buying both of these ETFs you’re on your way to a great diversified portfolio.
By following these steps, you can manage your finances better, live within your means, and start building wealth for the future. So empty that online Amazon cart and spend that $65 on an ETF share instead!
If you need to get your financial house in order, I’m happy to help you along the way. Consider working with me as your financial coach: https://nipitinthebudget.com/financial-coaching/