We’re halfway through 2024, and you might be taking time to review your finances at the mid-point of the year. There’s never a bad time to learn how to improve your finances, but there’s something about reaching our end-of-year goals that can be incredibly motivating.
Trying to achieve your financial goals, such as paying off a credit card or line of credit, saving for a down payment, paying off student loans, or maxing out your TFSA, can be overwhelming but very achievable. As with most things, your daily habits form the building blocks for larger successes, and finances are no different.
Let’s reflect on the little habits contributing to your current financial situation. Do you overindulge in shopping? Do you love going out to eat and getting takeout? While it can be challenging to break a habit, especially something as yummy and convenient as restaurant dining, eating out to the tune of $10-$20 can quickly add up to a monthly car or student loan payment if it becomes a daily ritual.
You may not even notice a money habit as a detriment until years later when you learn you don’t have the savings, credit rating, or sufficient emergency funds for approval on a mortgage, to go on your dream trip, or to quit your day job to start a business.
Below are four straightforward tips to improve your finances for the remainder of 2024.
1. Stop Comparing Your Worth
Sure, you should set aside a portion of your paycheque, but it’s easier said than done. Social media doesn’t just have you keeping up with the Joneses; it has you keeping up with everyone, thanks to a buffet of personal highlight reels. A seemingly innocent 10-minute scroll on Instagram can make you feel like you don’t have enough, that you are less wealthy, less travelled, and less fulfilled than the seemingly perfect people online.
When we feel less than, we tend to buy more than we need to compensate. It’s difficult not to give in to the consumerism that is prominent in popular culture, but if you decide to save that extra $100 instead of buying a new pair of shoes (that will go out of style in a year or two), your future self will thank you.
2. Start Saving Regularly
When you build a habit of spending all your extra dollars on something you can enjoy immediately, you miss the opportunity to reap the rewards of compound interest.
If you begin putting a percentage of your paycheque away now in an account or fund that pays you back with interest, your money will work for you. If you start early, you will save yourself from making higher contributions later in life to catch up.
If you’re lucky enough to have an employer that will match your contribution to your retirement fund, start now. Say you earn $30,000 a year, and you contribute six percent of your pay each year, and your employer matches three percent of that—if you start at 22, you could have over $40,000 saved up by the time you’re 30! The longer you wait to start, the more you will have to contribute and the less compound interest you will earn.
3. Start a Rainy-Day Fund
A rainy-day fund sounds nice, but how common is it to have three months of expenses stashed away in case something unexpected comes along (i.e. job loss, illness, or a major house or car repair) so that you don’t have to go into debt to cover it?
According to a 2015 Bank of Montreal survey, 56% of Canadians say they have less than $10,000 in available emergency funds, 44% have less than $5,000, and 21% have less than $1,000. 29% said their savings would only last one month or less, while one-quarter reported having enough to last them over a year.
The Rainy Day Survey of 1,000 adults, conducted by Pollara, also revealed that 24% of Canadians say they are living paycheque to paycheque with hardly anything set aside for a financial emergency.
At times, it can seem out of reach to have a rainy-day fund, but it is extremely important to set aside even a few dollars each month “just in case” your circumstances change, and you need funds to see you through for a few months.
Transferring $100 to your rainy day fund every month until you have saved three months of expenses stashed away is a great habit to start now that you will be rewarded for in the future.
4. Reduce the Interest You Pay
The rush of dopamine that comes with making a big purchase can make it easy to forget that the amount charged to your credit card is not the total amount you will pay for the purchase if it is not paid immediately.
It can be overwhelming to pay off credit card debt when the interest is working against you, especially if you’re constantly thinking about the total amount you owe. Consider splitting your debt up into chunks. If you have three credit cards with balances, consider each card as its entity.
If you have a $10,000, $3000, or $1000 balance on your credit cards, your best bet is to start paying down your debt with the highest interest rate.
Why? The credit card debt with the highest interest rate means you’re paying the most amount of interest relative to the principal balance. With credit card debt, your goal is to reduce principal to limit the interest that accrues.
Therefore, focus on repaying both the interest payment and the principal balance. Once you have paid off the credit card with the highest interest rate, move on to the credit card with the next highest interest rate (and so on).
Certainly, there are some exceptions. For example, if you have a $10,000 balance on a 15% interest card and a $1000 balance on a 19.99% card, you’re paying more interest on the $10,000 even though the rate is lower.
If your credit is good or excellent and you have a strong history with no late payments, you might qualify for a 0% APR Balance Card or a personal loan.
A 0% APR credit card gives you 0% interest on your credit card debt balance for a certain amount of time. That means you can transfer your existing credit card debt balance to a new credit card. For example, many 0% APR cards offer no interest on your credit card debt for 6-24 months.
At the end of the grace period, you will owe interest at an interest rate based on your credit profile and other factors. Therefore, with 0% APR credit cards, you can get a reprieve on credit card interest and pay off your credit card during the grace period.
With a personal loan, you can consolidate your existing credit card debt into an unsecured personal loan that is typically repayable in 3-7 years. If you plan to repay your credit card debt in this time frame and can obtain a lower interest rate than your current credit card interest rate, a personal loan is a great strategy to save interest costs.
For example, let’s use the $10,000 credit card with a 15% interest rate. If you can consolidate your credit card debt with a personal loan at a 7% interest rate and 3-year repayment term, you will save $1,361 and pay off your credit card debt earlier.
If you’re struggling to pay down your high-interest balances or are barely making minimum payments and fear that you are never going to get out from under your debt, one of our debt solutions might be a good fit for you.
Our team can educate you on proper money management, including budgeting techniques and the proper use of credit and debt repayment strategies.
Ready? Let’s talk! Contact us today and finish 2024 off on the right foot.