The Basics of Personal Finance: A Guide for Beginners

Omar Visram
The Basics of Personal Finance: A Guide for Beginners
Table of Contents

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It's never too late to take control of your cash! Whatever your financial situation, developing good money habits now can lead to less stress in the future. This guide helps you manage your personal finances more effectively.

Create a Budget

Covering the cost of rent, food, gas, and other essentials can be difficult, especially in the current economy. However, budgeting for all your outgoings can help you see where your money goes monthly. That way, you can avoid unnecessary expenses and pay everything on time.

Start by calculating your net income — your take-home pay after tax and other deductions. Then, work out your fixed costs, such as car and mortgage payments. Finally, determine your variable expenses, such as groceries and meals. By accounting for all your outgoings in this way, you can evaluate your finances and make smarter decisions about where to cut back.

Apps like Spendee and PocketGuard make budgeting easier than it's ever been. These technologies sync with your bank accounts and credit cards to keep you aware of how much you're spending.If you own a business, work with an accounting expert who can look at your books and track your expenditure.

Start an Emergency Fund

You never know what the future will hold, so try to put a little cash aside every month for emergencies. Sure, saving money isn't as exciting as spending it, but you'll thank yourself when you get an unexpected bill or your car stops working!

Ideally, your emergency fund should cover several months of expenses, which can be beneficial if you lose your job. However, saving thousands of dollars isn't easy, especially if you have lots of outgoings. The trick is to start small and slowly build your fund over time. Even saving $20 a week is better for your personal finances than nothing.

Unfortunately, savings account interest rates aren't as generous as they used to be, but you can still get some good bang for your buck if you shop around. Just avoid banks that charge you a monthly fee to look after your hard-earned money!

Consider Investing

Investing can be a scary word for those who've never done it before. However, there are low-risk options for beginners, including mutual funds with zero commissions and no investment minimums. If you choose the right options, you can minimize any losses and possibly generate huge returns.

Tax-free savings accounts (TFSAs) are a good place to start if you're new to investing. Alternatively, consider a taxable brokerage account that lets you withdraw your cash at any time without a penalty.

Talking to a broker about your options is always a good idea if you need some more advice. They can help you pick an investment strategy based on your budget and circumstances, whether that's stocks, bonds, mutual funds, or something else entirely.

Reduce Debt

If you or your business owe money to creditors, don't worry—you're certainly not alone! According to one report, the average Canadian owes $21,131 in debt, excluding mortgages.

No matter how much you owe, it's time to think about paying it back. While making minimum payments on your credit card increases your disposable income, it'll take longer to settle the debt because of interest. Consider upping your repayments or consolidating your debts onto one card via a balance transfer if you can.

Another way to get out of debt is to tap into your current savings. This is a good idea if you have high-interest cards or loans that will take years to pay off. Settling your financial obligations can also increase your credit score, making it easier to purchase a home in the future or cover an unforeseen emergency.

Plan for Retirement

Even if your retirement years are a long way off, thinking about your financial future can help you sleep easier at night. Start by figuring out how much you'll need to maintain your current lifestyle when you stop working, and type this amount into an online retirement calculator. You'll find out the amount you'll need to save monthly to achieve your goals.One of the best ways to save money for retirement is to open a Registered Retirement Savings Plan (RRSP). Contributing funds to this plan could lower your taxable income, meaning you'll pay less money to the government every year. Also, look into retirement accounts from mainstream banks that reward you for saving cash.

Make Changes Now for a Better Financial Future

Taking control of your personal finances now can result in long-term security. Budgeting, investing, reducing debt, starting an emergency fund, and planning for retirement provide peace of mind and might make your life easier in the future. Consider getting your business books in order, too! Enkel helps small and medium companies and nonprofits improve cash flow and visibility. Learn more about our bookkeeping and accounting services.

Personal finances are one thing, but what about your business finances?

The expert team at Enkel will produce accurate and reliable monthly statements so you can have clear visibility into the financial health of your organization. If you're ready to have more time in your day to focus on strategy and growth, please reach out. We would love to chat.

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