Chuck’s five steps to financial peace of mind.
Achieving financial peace of mind takes commitment and consistency … but it’s not particularly complicated. Surprisingly, the steps to take are straightforward: have your finances organized, have an emergency fund to draw on if necessary, and plan to have something left over at the end of the month to put towards your goals.
After speaking with many members of the education community over the years, here’s what I think you should do to achieve financial peace of mind:
1. Take your financial inventory.
Start by adding up your assets and deducting your liabilities. What’s left is your net worth. If nothing else, do this one thing every year. It gives you a personal scorecard that will quickly show if your financial health is improving, or not. Tax time is a great time of year to do this, because a lot of the information you need is already at your fingertips. Do it, tuck it away until next year, update it and compare results. Hopefully you’ll be pleased with the progress you’re making.
2. Establish an emergency fund.
All the planning in the world won’t make much difference if an unexpected expense throws you off your game plan. Expensive car repairs? Furnace breaks down? (Ask me about the new furnace I had to buy in December!) Life happens. If you have an emergency fund, unexpected costs or salary disruptions won’t mean dipping into the money you’ve been setting aside for long-term goals.
How much should you have in your emergency fund? Some experts say 3 months’ salary. Some say six. I say: whatever helps you sleep at night.
3. Set specific financial goals.
If you have debt, one of your first goals should be paying it down. With today’s low interest rates, many people are comfortable carrying debt. Trouble is, those same people never seem to pay it off. Furthermore, higher interest rates are going to come and with them will come pain if you’re carrying high-interest debt. Once you understand your debt, restructure it to ensure you’re paying the lowest interest rate possible.
Check out how consolidating your debt with one, low-rate line of credit can save you money, here.
Once you start paying it off, you can move on to financial goals that are more fun – like travelling during your summers off, renovating the house, and education. It helps to speak to a Financial Advisor, and I know where you can find one with your best interests at heart, contact us to find out more.
4. Live within your means (a.k.a, avoid spending money you don’t have).
Everyone hates budgeting. If you don’t hate it, I bet your partner does! But if you wonder at the end of the month where all your money went, it’s a must-do for you. Start by tracking your expenses. Then, set up a budget using this tool. Next comes the tricky part: stick to it. Experts say – and I agree – that the exercise of tracking your expenses will not only show you where your money is going, but also help you plan for seasonal expenses AND long-term savings. Think of it like Buckley’s Mixture – tastes bad but it works!
With a bit of practice, you will start to see money at the end of the month.
5. Start a monthly savings plan.
The last of my Top 5 tips is one you’ve heard before: “Pay yourself first!” It’s one of the healthiest financial habits you can have. When you get your paycheque, before you do anything else, take some off the top and put it into a separate account earmarked for savings. Doesn’t matter if it’s for retirement or to build up your emergency fund … just save something! One of the easiest ways to do this is with a Pre-Authorized Contribution (PAC) plan. We can help you set one up.
You can find out more about how a PAC works, here.
Finally: take advantage of the help that’s available.
This help could be improving your financial literacy, using the many available (and free!) online tools, or working with a Financial Advisor. By the way, it’s a myth that you need to have money to see a Financial Advisor. If you don’t have money, struggle with the Top 5 in this article, or need help getting started, you should see a Financial Advisor! At Educators, we can help with all three scenarios. Don’t be shy – we’re here for you and we’ve seen it all!
President and CEO
Educators Financial Group