Finance Tips & Reviews for Canadians

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How To Manage Finances – Our Top 5 Finance Tips

Personal Finance Tips Canada
If there’s one thing that most Canadians share in common, it’s that they worry about their finances at some point in their life.  As one of the main stressors for people of all ages, taking control of your financial situation is one of the single best things you can do to improve your quality of life and reduce stress.  Below we’ve compiled 5 of our best tips for managing your finances to build a prosperous and stable financial situation for you and your family.

1. Start As Early As Possible

This may seem like common sense, but it’s imperative to start planning finances as early as possible in life to give yourself the absolute best chance of success.  While it’s possible to turn any financial situation around, the younger you start the more time you have to learn the ropes, make mistakes and most importantly, build your nest egg.

With many programs offered in Canada to help you build your savings, it’s in your best interest to take advantage of the various retirement and tax savings vehicles available to grow your wealth.  Even if your savings seem small now, time, interest and compounding returns can have a massive impact on your financial picture in 10,20 or 30 years time and will set you well on your way to retirement.

2. Put Something (Anything Really) Aside From Each Pay

One of the simplest concepts when it comes to saving and building wealth is to always set aside a portion of any money that comes your way, whether it be your regular pay, odd jobs or a financial windfall.  The amount you put aside is of course up to you and will depend greatly on the amount of money you make and your monthly expenses, but allocating 10% to 50% of your monthly income to savings and investing will pay huge dividends over the years with compounding returns.

One of the simplest concepts when it comes to saving and building wealth is to always set aside a portion of any money that comes your way, whether it be your regular pay, odd jobs or a financial windfall.  The amount you put aside is of course up to you and will depend greatly on the amount of money you make and your monthly expenses, but allocating 10% to 50% of your monthly income to savings and investing will pay huge dividends over the years with compounding returns.

3. Take Advantage of The RRSP and TFSA

As two of the most generous programs offered to Canadians to help them save for retirement, both the RRSP and TFSA are absolute essentials for every Canadian.  The RRSP allows you to contribute up to 18% of your employment income each year into an investment account that is tax-sheltered until you withdraw it.  The TFSA is a tax-free savings account that allows you to contribute to invest in various assets or interest-bearing savings accounts and the gains and withdrawals are 100% tax free.

Both of these accounts offer tremendous value for Canadians of all ages and are simply one of the best ways to build your savings on your way to financial freedom.  For example, as of 2020 if you’ve never contributed to a TFSA before you can put up to $69,500 in the account and invest it in stocks, bonds, mutual funds, GICs or other investments and any gains are tax-free.  As you can see this is a great opportunity to build wealth for the long term without having to pay high taxes on gains.

4. Maintain A Great Credit Score (or Fix A Bad One)

Like it or not, your credit score is one of the most important criteria that will determine what you pay for many things in your life from your mortgage rate to getting the best credit card offers.  With Government policy heading more towards more fiscally conservative metrics for approving credit, now more than ever it’s important to protect and/or build your credit score.

Even if your credit is less than stellar, it’s not that difficult to improve your score (it just takes time) and doing so will open a lot of opportunity to you that’s not available to those with lower scores.  So if you’ve been carrying high balances or delaying paying off a loan, do what you need to do to reduce your debts and slowly build up your score, it will help you a lot.

5. Use Debt Sparingly and Conservatively

The reality is that unless you are quite wealthy you will inevitably use debt during your life whether it’s to get an education, lease a new car or buy your first home.  Using debt to leverage your purchasing power is a necessity for most and there is nothing inherently wrong with it as long as you don’t bite more than you can chew and have a good cushion for your payments.

Debt can also be a burden that chips away at your finances and makes it extremely difficult to save and build your wealth.  Because of this, priority number one for anyone wanting to improve their finances is to pay off debt, starting with the highest interest and working your way down.  While this can seem like a daunting task it’s the most important thing you can do with your money before you start saving and investment, because the interest is decreasing your wealth each and every month.

Finances.ca is not a licensed financial advisor or financial institution and our content should only be used for research and information purposes. Please consult a licensed professional before investing your money. We are not affiliated with the Government of Canada or the Department of Finance.