Stop Waiting! Five personal finance tips for RIGHT NOW.

Don't let this be you.

For the past few months I’ve been inundated with questions from friends and co-workers about money and finances. At first it was weird because I’m not an expert or anything; I just learned it as I went along. But I’m pretty sure that’s part of the reason people feel comfortable talking to me. To prove it, I’ll share this little anecdote, and my advice.

I graduated from University in 2007, took a post-grad in 2011 and it wasn’t until the summer of 2012 that I finally secured a full-time permanent position with benefits. While I was working those years in between, I didn’t “believe” that I was really making a secure income and put off personal finance as something I would automatically do once I got a “real job”. I paid slightly more than the minimum on my student loan, didn’t carry much of a credit card balance and had an emergency fund, but an RRSP? Multiple savings accounts? A TFSA? Meh. But NEWSFLASH – I already had REAL jobs, I just wasn’t REALLY committed to taking REAL control of my finances yet. Here are five quick tips to get you started.

1. Take control of your credit card debt.
The first rule is where most people make huge financial mistakes. Immediately make a plan to reduce your interest and aggressively pay off your credit card debt. (If you don’t have any? Skip to #2!)

Take a look at the interest rate for your credit card. Is it over 12%? Do you have a significant balance? Call your company and negotiate for a card with a lower rate. If you have a good record of paying on time, it shouldn’t be a problem. Here’s a handy script to use, my boyfriend called his bank and used this method and gained a new card with an interest rate half his current one in less than 15 minutes. Don’t be afraid of a small annual fee if it will be off-set by the interest you will save.

Don't be a slave to your credit card debt

2. Don’t neglect your student debt!
I hear this all the time “Oh, you have student debt? That’s ok, that’s GOOD DEBT.” Sure, it’s not as “perceptively” bad as $15,000 of consumer debt, but it’s still something that should be paid off quickly. The way a lot of people get stuck on their repayment is by simply going with the suggested payments from a lender. They make MONEY on your interest and more than a bank (usually prime interest rate plus 5%), so figure out how much you can spend a month and pay that puppy down.

Take my OSAP loan for example; when I figured out how much I can reasonably pay to make my balance disappear in two years, I started paying it immediately. When I finally signed to up my automatic deduction, they recommended a payment plan that would have me taking SEVEN YEARS, accruing more than 3x the amount of interest on my initial 1.5 to 2 year plan. Uh, no thanks.

2. Get an emergency fund.
Everybody should have an emergency fund, but what exactly is it? An emergency fund isn’t a savings account, per se. It’s money that COULD be put in a savings account but it has to be accessible when you need it. This is in case of a) losing your job b) medical bills/pet bills/accident c) other unforeseeable issues, maybe flying for a death in the family, etc.

This is money you SHOULDN’T be using for a vacation, or a new TV or your bills. This is something that you can take money out of so you don’t have to rely on a credit card or a loan of credit. Some people recommend three months of salary, some say three months of rent, some say three months of living expenses (three, three, always three.) I say go with a solid amount of money you think could support you if you needed it. I stick with three months of rent and loan repayment but YMMV. There are varying opinions all over for this one, but you know your personal finance situation better than anyone else, you know your risks and relative safeties. Once you build up this fund to that amount, leave it alone. I recommend checking with your bank for their high interest savings accounts because this will likely be at least, least, least a grand that you’ll have sitting, frittering away. I use PC and was able to set one up online with no trouble at all.

3. Pay yourself first
Set up a TFSA, GIC or a high interest savings account and get to saving on every paycheque. I personally try to make one automatic payment for my vacation fund from one paycheque a month and one for my TFSA or regular savings account on the other. Don’t put whatever is left at the end of the month towards savings, do it upfront and keep your eye on it.

Peggy is a saver, you know it.

4. Track your expenses
Whether you do it manually with a pen and a notepad or on an app on your phone, everybody questioning where their money goes by the end of the month should take a look at how they spend and where. It makes you more conscious of what you spend and also gives you hints on your habits. THIS is probably one of the more annoying things to do but it honestly takes very little time and provides a lot of information. Do it for a month and then start making changes. I used to use the notepad app on my phone but have had great results with Mint for the better part of a year and it’s become more of a habit than a hindrance.

What would Gail do?

5. Budget, budget, budget.
This is the part that people seem to hate. But I promise, budgeting is your FRIEND, not your enemy. You can still use it to determine how and where you want to spend your money, it’s not reducing any of the money you currently have, if anything it’s freeing up money you could be spending on things you actually want and need. If you have NO IDEA where to start, my personal finance hero Gail Vaz Oxlade has some great FREE resources on her website, including this helpful budget calculator that I swear by. She offers recommendations for spending, saving and your needs vs. your wants.

If you tackle these five steps, I can promise you’ll be financially healthier in absolutely no time. A great resolution and a very easy one to start 2013 with.

And now for the (sort-of) BONUS ROUND, are you ready?

5. RRSP
Once you’ve sorted out some of the first few steps, think about setting up your own personal RRSP. Whether you put in $25, $50 or $100+ a month, I promise you that your money now means way more than it does 10 years from now. Very easy to set-up, I did mine online and was putting in payments with an automatic deduction within a week. This is obviously on top of anything you do at work because I highly advise matching any employer contribution if you have any.

So there you have it, my exhaustive (hardly) list of things you can also do NOW to start managing your money. Anything I missed? Anything you disagree with? Let me know!

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