Tips for Financial Health

Money, that fickle mistress, is very hard to keep. It seems like the more you get, the more you need. Most of us have said something along the lines of, “If I only had $X more per month, then I’d be fine,” at some point in our lives. However, it rarely works out that way. Money can be a difficult, painful, frustrating subject for anyone. It doesn’t have to be, though. With the right tips and techniques, you can start creating better financial health in your life. Here are ten of the best ways to start.

1. Slash Your Debt

Slashing your debt might seem like an easy thing to do, until you look at all that credit card debt, that is. While you might “know” how deep in debt you are, it often requires a very hard look to actually understand how bad your situation really is. The first thing you need to do is list all of your debts from smallest to largest. Start repaying them now, starting with the smallest and working your way up

2. Plan, Plan, Plan

Before you can enjoy better financial health, you have to know where you’re going. What IS financial health to you? A good financial situation is different things for different people, and how you get there is up to you. The best way to start building better financial health is to make a plan. Write down your goals (for the week, the month, the year, the decade, what have you). Having a plan will give you something to fall back on, to look at and say, “I’m here and need to be there, and this is how I’ll do it.”

3. Prepare for Hardship

This is one of the hardest things to accomplish, but you need to build a financial buffer. You need to have money in your account so that if you lost your job, or some other emergency occurred, you would have the cash to cover it. You need the security that only having good savings can offer. Moreover, this should be separate from your investments – it needs to be readily accessible.

4. Budget Your Pants Off

Any good financial situation is founded on a solid budget, even the rich have to budget some things. Make a budget before you do anything else (and it’ll help you with building that cash cushion, as well). Identify areas where you can cut back spending (stop buying $5 cups of coffee, for instance), and then DO IT. Creating a budget can be tough, but it has to be done. You can use online budgeting and financial tools to help if you’re more comfortable using these services than going it alone.

5. Build for the Future

While tough times have made the investment market a murky, frightening place, you need to keep going. Choose the safest investments out there and keep putting your money away. Sound financial health means having the money that you need when the “golden years” finally sneak up on you. Find a good financial planner or advisor who understands that slow and steady really is the best option and follow his or her advice. Keep investing, but do it with an eye for constant, steady growth, rather than making a fast buck.

6. Evaluate Your Job

While the current economy has forced slowed down hiring, it is slowly beginning to pick up steam once more. If your career is not what you want, or not enough to give you financial security, then now is the time to get where you want to go. Where do you want to be in five years? How will you get there? Make your plan, change your job (or apply for a higher-up position) and embark on your journey. Now is the time.

7. Rent or Own?

This is a question I hear quite often. Investing in real estate now might not be the best idea for you right now (based on your current situation) and you may need to rent. If your rent is low enough, this can be fine. However, if you want to OWN a home and have the credit to get a loan approved (criteria is tighter these days), then now may be a good time. You’ll enjoy lower interest and will be growing equity.  Just be sure to factor in all those additional expenses associated with home ownership like taxes, repairs and maintenance costs.

8. Slash Your Expenses

Your spending is yours to control – no one else can do it for you. You need to identify where you can cut costs and then follow through on it. For instance, if downsizing your car will save you money, and you can make it work, then do it! There’s no need to pay for more car than you need. The same principle can be applied throughout your life.

9. Communicate

Your partner needs to be kept in the loop. Communication is the cornerstone of any good relationship, and you need to make sure that you keep a two-way flow of communication with your partner at all times. Discuss your financial goals, and possible ways to achieve them.

10. Free Investment Money

Yes, there is free money out there for many folks. If your employer offers a pension or matching RRSP contribution, then take them up on it! That’s more money for you, that you don’t have to work for – free money.

Manage Money by Setting Goals

The best way to avoid financial problems is to establish financial goals and a household budget to help achieve them. Your financial goals should be specific, realistic, time based, and flexible. As you put together your financial plan, place each goal into one of three categories:

• Short-term goals: These are goals that you believe you can accomplish within the next six months to two years, such as putting a certain amount of money in your savings, paying off a loan, outfitting your kids for the start of school, or having enough money to join a health club.

• Medium-term goals: These are goals that you feel you can achieve within the next three to six years, such as having enough money for a down payment on a home, paying off a car loan, or putting a certain amount of money in your retirement account.

• Long-term goals: These are goals that you project will take you longer than seven years to achieve. They may include sending your kids to college, having enough money to retire, taking your dream vacation, and so on.

Be realistic about your goals and about how long it will take you to achieve each one. If you are not, you’ll be setting yourself up for frustration and disappointment.

Unless you are lucky enough to come into a financial windfall, you probably can’t afford to work toward all your goals at the same time. If you try to do so, you may spread yourself so thin financially that you don’t achieve any of them. Instead, prioritize your goals so you know which goals to focus on first.

Most likely you will begin working toward short-term goals first because they are probably the most pressing, but you may be able to work on some of your medium- and long-term goals at the same time. For example, maybe you want to pay off your car loan over the next six months, and you also want to start stashing money away for a down payment on a home with the goal of having the money you need in two years.

After you decide which goals to work toward first, decide how you’ll achieve each goal and set a realistic time frame for doing what you’ve set out to do. For example, you may decide to get a second job and put all the money you earn from it toward a certain goal. You may decide to finance another goal through a combination of cash and credit.

Either way you do you it just be sure to revise your budget as necessary.

Money Saving Monday - 5 Money Lessons from The Wealthy Barber Returns

Dave Chilton, author of classic personal-finance book The Wealthy Barber, has returned with a sequel. Here's what he wants you to know about money, debt and investing.

Dave Chilton, author of The Wealthy Barber always swore he'd never write a sequel to the book that sold more than two million copies nationwide.

But 22 years later, the sequel has arrived -- The Wealthy Barber Returns. In his new book, Chilton tackles society's addiction to debt, and touches upon many important and well-known personal finance lessons -- lessons he says have become lost in today's world of plummeting savings rates, skyrocketing debt and disappointing investment returns. Here are five things he wants you to learn about personal finance.

1. You have to remove temptation triggers
Chilton explains that our brains have become so wired by the emotional excitement created by temptation that it can overwhelm our common sense.

By limiting our access to the triggers that drive our temptation, we will be less likely to give in. For example, if your weakness is clothing or purses, stop going to the mall or reading fashion blogs; if you have a habit of spending your cash on lattes, stay away from ATM machines and stop carrying cash with you -- or take a different route to work in the morning that doesn't go past the coffee shop.

2. Banks are a business

Contrary to what many of us would like to believe, bankers are not looking out for the customers' best interests. Banks are a business, and their goal is to drive more money into the pockets of their shareholders -- not yours.

3. Credit cards are evil, even if you don't carry a balance
Aside from the absurdly high interest rates on unpaid balances, credit cards encourage us to become less sensitive to the true cost of what we are buying. When a clerk swipes our credit card, it's a lot easier to miss -- or ignore -- how much we are spending.

Not only that, but people who don't carry a balance on their credit cards are not immune to the credit card trap. They might be able to pay off their credit card bills every month, but using the card could still lead to overspending.

4. You can't have everything you want
Even millionaires can't afford everything. Chilton believes that making small cuts in our spending habits can lead to dramatic results -- without sacrificing our quality of life. The key is to indulge in the areas that are important to us -- whether it's travel, a particular sport or fine wine -- and cut our spending everywhere else.

5. Save when the saving's good

"It's crucial to understand that wealth flows from savings, not from income,” says Chilton. So when you get an unexpected windfall or a raise at work, or you take on a part-time job to generate more income, it's important to put away at least 10 to 15 per cent of your income. Life happens, and money might not come as easily down the road. A divorce, a bad investment return, a job loss or an illness can leave you financially crippled if you haven't planned ahead.

The Wealthy Barber Returns is a must-read for all Canadians. Chilton's easy-to-understand financial tips and humorous approach to teaching us about money makes this book appealing to people of all ages.