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✔ A budget can help you learn more about your financial goals and spending habits.

✔ It can be simpler than you think to rebuild your credit and strategically pay off debt.

✔ Saving for an emergency fund and retirement can help provide peace of mind.

After one of the most stressful years on record, we can’t blame anyone for wanting to splurge any extra cash on creature comforts. But while spending might produce short-term happiness, putting that money towards your long-term financial goals will pay dividends not only for your financial wellness, but also for your mental well-being. 

The key is to understand how planning, spending, saving, and borrowing all work together to form the big picture of your financial health. And since right now is the perfect time to review your finances and make plans for the remainder of the year, these five important steps can help you achieve financial wellness in 2021 and beyond.

1. Learn how to make a budget that fits your needs

The best way to create a budget is to start by looking at your after-tax income and fixed expenses (the stuff you have to pay for every month, like rent and groceries). Then see what’s left over for variable expenses (the stuff you could cut if you need to, like your Netflix subscription), as well as savings and debt repayment. If you’re new to budgeting, you may find it helpful to track your bills and receipts for a month to get a detailed view of your spending habits. 

A simple budget calculator can help you figure out whether you’re spending more than you earn each month. And if that’s the case, you may need to spend less on discretionary or variable expenses, see where you can increase your income, or—if you find yourself in a bind—borrow money so that you don’t fall behind on bill payments. 

2. Pay off debts in the proper order

According to Statistics Canada, Canadian households owed an average of $1.71 for every dollar of disposable income at the end of 2020. But no matter how much debt you have, most experts agree about which debt to pay off first: it’s preferable to tackle high-interest debts at the beginning. That method will reduce the amount of interest you have to pay, so you’ll ultimately pay off your debts a little quicker. 

You can also consider debt consolidation, where you combine various loans and bills into one loan (typically with a lower interest rate overall than the existing debt).   

3. Establish a safety net for peace of mind

Saving for a rainy-day fund should be a part of any budget. The pandemic has certainly shown us the importance of having enough funds available to cover basic expenses in a tough situation, like if you have a sudden loss of income. How much money should be in your emergency fund? That amount can vary from person to person, but financial experts often recommend saving about three to six months of living expenses if you can. 

4. Rebuild your credit with the right tools

Having a low credit score (below 650 or so) can impact your access to new credit, and that could mean that you have to pay higher interest on loans. To improve your credit score, try to build a longer credit history, pay your bills on time (and more than the minimum on credit cards), and avoid maxing out your loans and cards. Checking your own credit score won’t lower it, but too many “hard credit checks” (like loan applications) might. And so can cancelling credit cards.

5. Save intelligently for the future

Being prepared for retirement is an important part of achieving long-term financial wellness. Figuring out how much to save involves thinking about your retirement goals now: when and where do you want to retire, and (accounting for inflation) how much money do you expect to spend in retirement? 

Once you have a number to work towards, it’s never too early to start building a nest egg. Two popular ways to save for retirement are Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). Both have annual contribution limits, and both allow for tax-free growth of your money and investments. The key differences? RRSP contributions are tax-deductible now, but you’ll have to pay taxes on the money you take out in retirement—ideally when your expenses are lower. TFSA contributions, on the other hand, are made with after-tax funds, and you won’t be taxed on any money that’s withdrawn before or during retirement.

Those investments might seem like long-term, big picture options right now, but remember that putting even $10 a week into your RRSP can get you started, and those small amounts make a big difference in the long run. And if you automate those small contributions, you’ll never even have to think about them.