This is a guest post by the experts at Ratehub.ca
There are several milestones in life, but none as sweet as when your monthly expenses no longer deplete your bank account. Getting there is less about the amount of money you earn than about how well you manage expenses and earnings. To help you take control of your finances, we’ve put together five financial hacks.
If you want to stop living paycheque to paycheque, put these five changes into action.
1. Develop a Financial Plan
Taming your finances is like any goal. To achieve a goal, you need a plan. Before creating that plan, do an analysis of your monthly spending. What are the external forces that deplete your resources? What internal weaknesses set you up for failure? Are you likely to take an impromptu vacation or go on a spending spree with your best friend? What opportunities do you have to increase your earning power through side hustles or investments? Once you establish what will impact your finances, you can set a goal and build an action plan to get there. Perhaps you want to set up an emergency fund by the end of year. To be successful, your plan or budget needs to detail your income and expenses. You can easily create a budget using an app or a simple spreadsheet.
2. Reduce Your Debt Payments
Eliminating credit payments and bad debt is essential to keeping more of your income. Do some research and find an option to consolidate your debt or refinance your loans. Find a creditor that’ll charge you less interest or offer you a zero-interest payment period. If you can make the same amount of payments during the interest-free period as you did before, this will help you pay down your debt faster, which will help you keep from paying unnecessary interest charges.
3. Don’t Spend Frivolously
If you’re going to get to that initial goal, you’re going to have to change the way you spend. Once you’ve identified the ways you spend your money unintentionally, you can avoid your financial minefields. Think about your non-essential expenses. Do you buy things you don’t need? Do you eat out a few times a week? If you limit how much you spend on take out and restaurants, you can save thousands of dollars a year. If you’re a homeowner, make sure you take advantage of energy efficient products and programs to reduce energy costs. Don’t turn on the dishwasher or do laundry during peak energy hours. Lower the thermostat in the winter and keep the air conditioner off in summer during the day.
4. Pay Yourself First
Another way to ensure you save more of your money is to set up automatic transfers once or twice a month. The trick is to take the money off your paycheque before you ever see or touch it. Align the automatic transfers to when you get paid. If you save 10% each month, you can save 120% of your monthly salary by the end of the year. Also, try to set up more than one savings account. One can be for an emergency, another for vacations, and a third for birthday and holiday presents or to buy something special for yourself.
5. Make Your Savings Work For You
The last and possibly most important change to help you stop living paycheque to paycheque is to make your money work for you. To make your savings grow with minimal effort, park your money in a high-interest savings account. There are many financial institutions that offer accounts with annual interest rates of 1.5% to 2.3%. This will allow your savings to earn interest without you having to do anything. You can also set up an investment account; start small by contributing to a GIC or an index fund.
The Bottom Line
Once you’ve met your initial goal, you should revisit your financial plan and adjust your budget. With the simple changes mentioned above, you can reduce your debt load, spend more responsibly, and put away some money to reach your savings goals.