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Published : Nov 27, 2018

5 Keys to Successfully Managing Your Personal Finances

For most of us, learning to manage your personal finances can seem like a trial by fire. Few of us learned about finances in high school, and by the time you need it, it almost feels like lessons about managing your money come too late in life.


But the truth is that it’s never too late to get a grip on your money. Here are five ways that will ensure you manage your money effectively and, most importantly, successfully.


Set Goals


A goal is an observable and measurable end result that you intend to achieve in a given timeline. It is not a goal to say that you want to pay off your credit card. It is a goal to write down and review that you want to put at least $500 a month on your credit card and have it paid off by the January 1st.


When you are setting goals, make sure they are SMART goals: specific, measurable, attainable, relevant and time-bound. SMART goals are proven to be more effective than setting other kinds of goals.


It is also important to review your goals . For short-term goals, review them daily—if you want to spend less money on lunches, review daily that only one lunch a week will be from a restaurant. For long-term goals, review them at least once a week.


Create a Financial Plan


Once you have your goals in place, use them to create a financial plan. A financial plan should include establishing a budget, analyzing your monthly cash flow and creating a road map to get you out of debt.


Your financial plan should not just be short-term, though. Include your retirement goals , when you want to buy a house, where you want to go on vacation and any other luxuries or dreams that you may have. Put these into a timeline and figure out when your SMART goals will get you there.


Depending on your debt, things like a house or a vacation might seem like a long way off. But by setting goals and paying down your debt, your cash flow will begin to improve substantially. You should never neglect savings, either.


While it may seem like a good idea to put all your money towards paying down debt, a good rule of thumb is to save at least 10% of your income—whether that is a TFSA, an RSP, ETFs, or just a regular old savings account— if not more than 10% . Seeing your savings grow over time will give you the morale boost you need to keep going.


Stick to Your Budget

Even the best savers lose control of their spending sometimes. You might think you know what you’re spending each week, but spending can easily spiral out of control. That’s why a budget is so important.


You already made a budget to accompany your financial plan, now you have to make sure you stick to it. A budget allows you to make proper choices with spending and can set you on the right track to financial freedom.


Whether you are single or in a relationship, a budget should apply to your entire household spending. And even if you have paid off all your debt, it is best to still stick to a budget. Even without debt, a budget will allow you to save up for your dream vacation or a down payment on a house faster.


A budget is one of the most powerful tools in your financial toolbelt. Just like your goals, make sure to sit down and review your budget , though once a month should work. Did you stick with it? Did you spend too much? Was your first budget unrealistic?

Get out of Debt

One of the biggest burdens that Canadians bear is debt. Between credit cards, car loans, and lines of credit, the average Canadian has almost $23,000 in debt . It is disheartening to look at your debt, and the monthly minimum payments take a massive bite out of your cash flow without making any real progress on paying them down.


First things first, figure out how much debt you have. Sit down and add up every credit card, line of credit and vehicle loan you possess, and save that number in a note on your phone or a post-it on your desk.

Once you realize how much debt you have, create a debt repayment plan . The most effective way to tackle debt is to pick one product and get rid of it before focusing on another. The product you start with is up to you—you might want to tackle the highest interest debt you have or the one with the lowest balance first. Make sure that your debt repayment plan aligns with your goals.


Another great way to help reduce your debt is to leave your credit cards at home. Since you have already created a budget, use cash or debit for your purchases and avoid your debt getting any higher.


Get Advice


It might seem embarrassing to not have a handle on your finances, but it is a problem that the majority of Canadians face. Do not be afraid to ask for help when creating your financial plan.


This can be as simple as chatting with family and friends about how they got out of debt, or how they manage their spending from week to week. Let their advice help shape your plan, but don’t take everything they say at face value. If you know someone who has gone through the same thing that you are going through, ask them to help mentor you .


The best advice you will get is from a financial planner . Whether you use a private financial planner or talk to an advisor at your bank, the conversation and advice they will provide is invaluable in getting a successful hold on your finances. They will explain investment options to you if your goal is to invest, or they will help consolidate your debt if you are trying to pay it off.


Getting a hold of your finances will seem intimidating and sometimes impossible at first. Debt can be overwhelming, dreams can be far away. But following these five steps will set you on the best path to achieving financial success.

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