Four Steps to Improve Your Financial Wellness This New Year

Four Steps to Improve Your Financial Wellness This New Year 

For a lot of us, the New Year means it’s time to make resolutions. Many people will focus on improving their physical and mental wellbeing, both important endeavours, but what about your financial wellness? Taking control of your money not only gives you the power to plan for the future, but it can also improve your overall wellbeing.  

Canadians who are stressed about their finances are twice as likely to report poor overall health and four times more likely to suffer from sleep problems, headaches, and other illnesses. The constant background stress of money troubles can impact every facet of life from your health to your relationships with friends and family.  

So how can you improve your financial wellness? Here are four easy steps for you to follow. 

• Assess your current situation
• Create a budget
• Come up with goals
• Create a financial plan

Assess your current situation

The first and arguably most unpleasant step is to assess your current financial situation. Choose a time when you can have quiet and gather all your bills and print off at least six months' worth of bank/credit card statements. Brew your favorite beverage, choose a healthy snack, and begin reading everything through. You will quickly begin to recognize patterns in your spending and credit usage, many of which can be easily changed.   

For example, maybe you’ve made a habit of taking cash advances on your credit card, which is a very expensive way to access cash. Look at how much that is costing you every time you do it, now come up with a better way to access cash. For example, if repaying your creditors is leaving you short on cashflow you may want to consider a consolidation loan. A consolidation loan takes all of your outstanding debts and combines them in to one payment often at a lower rate of interest than you were previously paying.   

Before you get started here are five tips for getting yourself in to a better money mindset.  

Create a budget

Once you’ve assessed your spending you can create your budget, which involves breaking your spending down in to categories; the two most basic are fixed and variable. 

Fixed expenses refer to the money you have to spend on bills, except for hydro and gas, they should be a fixed amount month to month. When creating your budget, you deduct your fixed expenses first since they will occur every month and must be paid to keep the lights on.  

Variable expenses include items like groceries, clothing, vehicle maintenance, entertainment, etc. things you still need but have more flexibility on in terms of spending. Create as many categories as you need based on your spending habits, put limits on how much you can spend for each category and make sure to establish a savings account. You may even want to consider two savings accounts, one for long term savings like retirement and another for unexpected expenses like car or home repairs.  

Here are four easy steps to creating your own budget.  If you need more help, check out our easy to use budget calculator.  

Come up with goals

Now that you understand your financial situation and have a picture of your monthly spending, it’s time to come up with some financial goals. If you are carrying credit card debt month to month one of your first goals should be to pay it off completely. Paying down your credit cards at an accelerated rate will help you save money that you can then apply to other goals like saving for a vacation, paying off your car or replacing an ailing appliance.  

Create a financial plan

A financial plan is like a road map of your money. It considers where you are currently and where you plan to go, and if the plan changes so will the map. This is where you take all your financial goals, prioritize them, and assign them a time frame. The plan adapts whenever you reach a goal or have a change in priorities.  

For example, if your goals include saving money for a new car, taking a vacation, retiring early, or saving for a down payment on a home, you are looking at different savings amounts and timeframes. Depending on the destination you can save for a vacation in as little as six months, whereas a 30% down payment on a home could take upward of five years.  

Creating a financial plan helps keep your money goals on track while keeping you cognizant of your spending.  

This New Year make a point of improving your financial wellness. It won’t just help you take control of your money and reach your financial goals; it will also improve your overall health.