Cleaning Up Your Personal Finances
Written by Preet Banerjee
Monday, April 2nd, 2018
The snow has finally melted, the birds are singing, and the days are getting longer. It's that time of year when many Canadians spend an entire weekend spring cleaning their home. It's a chore, but after it's done, they have a sense of accomplishment, and their house looks great, too.
Spring may also be an ideal time for a deep cleaning of your financial house.
Over the past few months, there have been a lot of financial "events" to contend with: the expensive holiday season, the possible credit card hangovers into the New Year, a short run-up to Valentine's Day, and finally the RSP contribution deadline. But from now until the back-to-school sales (which seem to start earlier and earlier every year), there's really only one major financial “event" to contend with: getting your receipts together for tax time. And since you have to gather some paperwork together, why not play off that momentum, roll up your sleeves, and give all of your personal finances a once-over?
If you've never put together a detailed list of your expenses, now's a great time to start. These days, it's relatively easy since most transactions we make will show up on a credit card or debit card statement. You just have to access your account history and start categorizing all the money you spend. Often, just the act of adding up your expenses for a few months will motivate people to cut their expenses.
You may occasionally think that you go out to dinner too much, but it's likely less of a concern until you add up your restaurant bills and realize you're spending twice as much as you thought.
Pick all the categories where you might be overspending and see if you can manage a 20% reduction across the board. If you have high interest debt, like a balance on a credit card, set up an automated payment against that debt that's equal to your previous monthly payments, plus whatever new savings you've found.
If you don't have high interest debt, then you can put your 20% cost savings into an investment or savings account. Again, you'll want to automate it using a recurring transfer from your chequing account.
Taking the time to sit down, review your expenses, identify areas where fat can be trimmed, and then set up automated transfers to redirect excess spending into debt repayment or savings is a bit of a chore. But after it's done, you'll have a sense of accomplishment and your financial house will look great.
Further Reading: Tidy Your Finances to Avoid Identity Theft (Infographic)