This article was written in partnership with the Chartered Professional Accountants (CPA) of Canada.
Saving money is a challenge for many Canadians. Living paycheque to paycheque is a common reality for a number of us. At Alberta Blue Cross®, we recognize that wellness comes in many different forms. That’s why we’ve partnered with CPA Canada to provide expert advice and saving strategies to help you and your family experience financial wellness and stability.
Pay yourself first
- From your employment income, set aside a percentage of your paycheque each month as savings.
- Reduce your spending accordingly.
- Measure and track how much you’re saving each month.
- How much should you be saving? The Government of Canada has a number of financial tools and calculators to help you calculate a budget, create financial goals and more.
Make a budget
A budget is a spending plan that reflects your income, expenses and goals. Having a budget is like having a financial GPS–you can take financial detours but the budget always helps you return to the roadmap. The key to a good budget is setting your goals and tracking your progress towards achieving these goals.
Getting started in your budget
1. Financial analysis
A financial analysis is an analysis of, well, your personal finances. A financial analysis includes the following considerations:
- What are your fixed expenses? These are expenses that don’t change each month and cannot be modified to save more money (for example, rent or car payments).
- What are your variable expenses? These are expenses that you can set a budget for and track if you are under or over budget. Variable expenses are considered to be food transportation, utilities and more. With these expenses, you can adjust your spending habits to help you remain within your budget.
- What are your discretionary expenses? Discretionary expenses are wants rather than needs and can fluctuate based on the month. These discretionary expenses can be items such as clothes, takeout or social activities that cost money to participate in. You can set a budget for these discretionary expenses and track whether you have the means month to spend money on non-essential items. Tracking your spending will alert you if you need to take steps towards remaining within your budget by reducing your discretionary spending.
- What are your periodic expenses? These are expenses that do not occur monthly, but you know they will be incurred at some point in the year (for example, summer camp for your children). Knowing when these expenses will be incurred, and how much they are expected to cost, allows you to set money aside early to be able to pay for the expense when it finally comes around.
2. Action Plan
First thing’s first, build your budget. We recommend visiting the Government of Canada’s website to help you create a budget and reach your financial goals or meeting with a financial advisor.
Once you have built your budget and set your goals, create a plan of how to achieve this budget. Consider the following:
- How often will you check your budget?
- How will you track your spending to input into my budget?
- What will you do when one of your expenses is trending over budget?
Save from your investment income
- Make your savings multiply. Put your money in investment vehicles such as Tax Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), Guaranteed Investment Certificates (GICs), Registered Education Savings Plans (RESPs) and mutual funds that can earn you money on top of the money you have invested. For this, we recommend speaking with a trusted financial advisor who can recommend an investment strategy that is tailored to you.
- Reinvest interest and dividends earned. When you earn money on top of your savings, reinvest it and continue to save it.
The four key elements to successful spending are the following:
- Live within your means.
- Differentiate between needs and wants.
- Reduce expenditures by 10 per cent. For example, one dollar spent does not equal two dollars earned.
- Avoid buying on credit.
Keeping the momentum
- Create a plan and measure yourself against the goals you’ve made.
- Focus on making your hard-earned money work to achieve your financial goals.
- Success depends on controlling expenses and living within your means.
- Observe daily financial decisions and adjust your decisions to meet your goals.
- Utilize resources such as the financial tools and calculators from the Government of Canada, goal setting worksheets and a values validator worksheet.