How do you feel about your current financial well-being?
Financial well-being isn’t a box to check off on your to-do list but more of a journey. Your financial well-being will change and evolve over time. The easiest way to gauge where you fall on the financial well-being spectrum is to ask yourself some questions, like:
- Do you feel your current financial situation allows you to do the things you want in life?
- How comfortable are you in your financial knowledge? Do you make confident, informed financial and product choice decisions?
- How much do you save? Do you know how much you need to save to accomplish your goals? Are you on track to reaching them?
- Are you comfortable meeting your current obligations? How comfortable would you be if your income were disrupted or delayed?
- When will you be debt-free?
- When looking at your financial position, do you feel you are comfortable, coping or stressed? If you feel stressed, does the stress impact other areas of your life such as relationships, health or job performance?
If you aren’t 100% happy or confident with your answers, there are steps you can take to increase your financial well-being.
Beginning: Building a Secure Foundation
If you are just starting on the journey to financial well-being, here are a few basic steps you can take to build financial stability:
- Live within your means - simply spend less than you earn. Never borrow for daily living. Ever. A budget is a great way to take control over your finances and your spending. Make a plan to deal with times you may be short of funds without resulting to borrowing.
- Avoid high interest debt.
- Have a buffer. Set up a fund for financial setbacks. You are going to experience them; it’s not a question of if but when. You will save a lot of worry and stress if you have a buffer in place when the setbacks happen.
- Protect yourself and your family. Ensure your insurance coverage is adequate and up to date. Having a valid will is critical in protecting your family.
- Increase your financial knowledge. Learn about savings and investment products, consumer loans and credit cards and how to choose the right ones for your circumstances.
Midway: Moving into Financial Independence
Once you have the basics in place, you’re ready to move on to building financial independence:
- Set savings and investment goals. Begin with the end in mind. Know what you are saving for and how much you need to achieve your goals.
- Take a long-term view. Those who take a long-term view are more likely to save, make better spending choices, and plan for the future - compared with those more inclined to live for the moment.
- Build assets! Investment vehicles such as tax free savings accounts (TFSAs) and registered retirement savings plans (RRSPs) are popular because they have many tax advantages! Home equity is another great avenue to build your net worth.
- Make a plan to pay down debt. If you are just starting out on the journey to financial well-being, you may want to tackle high interest debt, like credit cards first. If you’re further into your journey, perhaps you want to look at options to help pay down your mortgage more quickly
- Saving for your childrens’ education. Investing in registered education savings plans (RESPs) is important if you have children who will likely be moving on to post-secondary education.
On the home straight: Financial Independence
Once you’ve set the stage for financial independence, then you can move on to financial freedom:
- High Growth Opportunities. You may want to look into investment, estate, and tax planning strategies. Check in with your financial planner or other professional regularly so you can monitor your progress and adjust your plan as life changes and evolves.
- Giving back (time and money). Once you have everything you need and more, perhaps it’s time to look at your legacy and what you’d like to be remembered for.