According to a survey from earlier this year, one in four Canadians couldn’t cover an unexpected expense of $500. Worse, one-third of respondents said it was hard for their household to meet its financial needs in the last year. With prices rising through inflation, it’s not hard to see why many of us are struggling!
Though it can take time and effort to set up, a solid financial foundation can help you avoid some of this stress. Building a budget, setting up an emergency fund, and saving for your future are smart moves for people of any age. If you’re not sure how to get started, let’s take a look at the key steps toward building your foundation.
Make a Budget
The first step to a financial foundation is taking control of your cash flow.
Your cash flow is your personal income minus your expenses. Keeping track of it helps you understand your financial health. In an ideal world, your cash flow will always be positive, meaning that you’re making more than you spend.
To track your current cash flow, jot down your monthly income and subtract everything you spend during the month. You can do this on paper, in a spreadsheet, or with an app. Once you’re done, take a look at your spending and decide what you’d like to change in the future.
These desired changes are the first steps toward setting a budget. Where tracking your cash flow is passive, budgeting is a proactive way to manage your money. It can help you predict your future costs and save for goals.
There are plenty of different budgeting strategies worth experimenting with. For budgeting beginners, the 50-30-20 rule is often ideal. With this tactic, you’ll put 50% of your income toward your needs, 30% toward your wants, and 20% toward savings.
Create an Emergency Fund
Budgeting is a great first step, but it won’t help you overcome all obstacles. As we mentioned above, many of us would struggle to pay an unexpected bill, and higher costs can drive us toward financial instability unless we have a safety net in place.
That’s where an emergency fund comes in. This fund is an account that you can dip into if things go wrong. Experts suggest having around three to six months’ worth of expenses saved up.
This can feel like a mammoth goal if you’re starting from scratch, but it doesn’t have to be as hard as you’d think. Saving a small percentage of your income each month is a great start.
However, you’ll want to make sure you’ve chosen an account with a high interest rate. Most savings accounts have low rates, so a high-yield checking account is often a better deal.
Debt can be a great tool if you use it well. Mortgages help us purchase homes, for example, and student loans help us invest in the future. Other debts, like business loans that help us reach our goals, can be helpful as well.
However, certain types of debt are worth eliminating as fast as possible. Credit card debt, payday loans, car loans, and heavy debts you struggle to repay can damage your credit and finances. These “bad debts” don’t help you increase your net worth or enhance your future.
For this reason, getting rid of these outstanding debts is crucial when you’re building a financial foundation.
Organize your list of debts, including the current balances and associated interest rates. From there, pick your favorite debt repayment strategy and stick to it.
Set Goals and Invest in Them
Once you’ve taken care of the basics above, it’s time to set yourself up for financial success. This success will look different for everyone, which is why it’s helpful to set personal goals.
Think about what you want from your future. This can include everything from a five-year plan to your dreams for retirement.
Depending on when you hope to reach these goals, you can use different financial tools to invest in them. Here are a few common tools:
- Savings account
- High-yield checking or savings account
- Money market account
- Certificate of deposit
- Registered Retirement Savings Plan (RRSP)
- Group Retirement Savings Plan (GRSP)
- Exchange-traded funds (ETFs)
- Mutual funds
Whichever options you choose, consider setting up automatic monthly contributions according to your budget. This makes it easy to invest without effort.
Last, but not least, make sure to educate yourself as you take control of your finances. There are plenty of online resources available to help anyone learn about finance.
You can start right here on our blog! EasternLoans offers posts on a wide range of financial topics to help customers understand their options.
There’s also no shortage of podcasts, YouTube videos, and webinars offering financial advice online. If you’re looking for in-depth help with more complex topics, consider picking up a book, subscribing to a financial magazine, or taking a free virtual university course. For personalized guidance, you can also work with an accountant or financial advisor.
As you start your journey, make sure the content you consume comes from reputable sources. You’ll want unbiased information when you’re making critical decisions that affect your financial future.
Start Building Your Financial Foundation Today
A solid financial foundation can help you tackle unexpected expenses and invest in your future. Even better, it can offer great peace of mind in times of financial uncertainty. The tips above are great ways to get started, so start taking your first steps today!
As you work to improve your finances, don’t forget that EasternLoans is on your side. Our fast online loans make it easy to invest in your future or get funds when you need them most. Check out our eligibility criteria or apply online today.