4 ways to better manage your money now so you can maximize your pension later
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As an education member, you’re one of the fortunate groups of Canadians with a defined benefit pension plan in place.
That’s pretty amazing when you think about it.
Yet according to the Educators Financial Kickstart Challenge, only 53%* think that pension will actually be enough to fund the duration of their ‘after school’ years. That’s because many of these individuals are reaching retirement while they’re still paying off outstanding debt—such as mortgages, credit cards, and other loans. This reduces the amount of available cash flow by a great deal, considering they’ll be bringing in less income than their working years.
Regardless of where you fall on the pension income debate, there is always room to take better control of your finances now to ensure peace of mind later in life.
1. Start by setting financial goals (other than retirement).
Thanks to our Educators Financial Kickstart Challenge, we’ve discovered that 55% of education members have not set any financial goals for the next 5 to 10 years. However, just because you’ve got OTPP or OMERS to rely on in retirement, doesn’t mean you should become complacent when it comes to setting other financial goals to work towards between now and then.
If you’re early in your career, perhaps you want to pay down debt and switch from renting to owning a home. If you’ve been working in education for a while now, maybe you’re looking to pay your home off sooner, save for your children’s post-secondary education, or take advantage of a deferred salary (‘X over Y’) leave. If you’re retired, then perhaps you’re looking for ways to make your pension income work harder for you.
No matter where you are on the timeline of your professional life, one thing is for certain; time and retirement wait for no one. Setting financial goals now will ensure you are prepared to pay for every minor or major life change and event along the way.
Tips for setting financial goals:
- Approach it in the same way as you would set up your lesson plan for the school year
- Map out WHAT you want to accomplish (I.e. boost summer cash flow, take a deferred salary leave, save for children’s post-secondary education, build up an emergency fund, etc.)
- Assign a timeline as to WHEN you want to accomplish each of those items
- Then work backwards to figure out how much you need to save in order to achieve those goals
Learn more about how to set goals, assign timelines, and put your own financial plan into motion.
2. Create (and stick to) a budget.
While this one may seem pretty obvious, the latest numbers from Statistics Canada have the national household debt-to-income ratio at 172.3%. That means for every dollar in household disposable income, Canadians carry approximately $1.72 in credit market debt (which includes consumer credit cards and mortgage/non-mortgage loans).
Then there’s the admission from education members themselves that they need help when it comes to getting a handle on their budget:
- 54% of education members have debt they would like to get under control*
So the ultimate lesson here: budgeting is essential to avoid getting caught in the debt trap.
Tips for creating and sticking to a budget:
- Prioritize spending into needs vs. wants
- Set up separate accounts/investments for your financial goals
- Have contributions to those separate accounts withdrawn automatically from your regular account (to avoid the temptation of spending what you could be saving)
- Fine-tune your budget as time goes on
Most importantly, make the commitment.
Like starting a fitness regimen or quitting smoking, budgets take time and a whole lot of discipline to establish as ‘routine’. Committing is half the battle—so if you’re serious about taking control of your finances, you’re already halfway there.
Here’s how to build a budget that works
3. Start actively paying off debt.
While debt is necessary to establish credit, carry too much of it and debt can become a burden.
Yet paying off debt can be easier said than done.
With pension plan contributions, a salary dependent upon where you are on the pay grid, as well as the need to be financially sustainable throughout the summer—balancing your income-to-debt ratio can feel like a real challenge. But it’s not impossible.
Tips for paying down debt:
- Shop around for lower interest rates—an instant way to start paying more towards the principal
- Consider consolidating multiple high-interest debts into one low-rate option (not only can this reduce the timeframe of paying off debt—but also has the potential to save you a ton of money in interest payments in the long run)
- As you start paying down loans and credit cards, consider lowering credit limits to avoid racking balances back up
5 credit tips to put you on a path to borrowing responsibly (and saving money)
4. Trim excess spending.
Are you paying for a gym membership you never really use, or a cable package you never watch? Taking better control of your finances also means cutting back on monthly expenses that aren’t really doing anything for you (other than eating up a portion of your budget).
Tips for trimming excess spending:
- Review your monthly bank/credit card statements—identify any automatic withdrawals being made for services you’re no longer using, then cancel them
- For the services you are using, consider calling the customer loyalty department to negotiate better rates
- Comparison shop—it’s the best way to ensure that you’re really getting your best deal
If you’re looking to trim some serious excess spending, here are 5 tips for saving up to $500 a month.
Need guidance on taking better control of your finances? Call on us for educator-specific advice.
Since 1975, Educators Financial Group has been providing financial advice exclusively to members of the education community—which means we have a unique understanding of everything from the pay grid to your pension plan. It’s the kind of insight that puts us in the perfect position to help you take better control of your finances now to achieve your ultimate goals in the future.
Have one of our financial specialists contact you to get started today.
*Above statistic courtesy of the Educators Financial Kickstart Challenge
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