You know how it is – finances are one of those topics everyone is interested in but no one wants to talk about. We all come from different backgrounds, with different money experiences, and mindsets. It’s a taboo topic that most people tiptoe around, never revealing too much. We’re not taught personal finances as kids and unless are parents are ‘money smart’, we typically watch from the outside with no benchmarks but our own, and get told stories like “Money doesn’t grow on trees.” or “There’s never enough.”.
As a disclaimer, I am not a professional in personal finance but through my own journey of self-discovery, challenges, lessons, and research I have built smart financial habits that as a 23-year-old have put me in a great position. I haven’t reached my goal of being a millionaire, nor am I in the 6 figures yet (although that’s coming), I have struggled with finances, a lack mindset (still struggle with this one), and insecurities around money. Growing up, my parents were and still are some of the hardest working people I know but as a family, we struggled with finances at times.
As a teenager learning how to manage my money, I became reckless, went to get my first $500 credit card, and always had it maxed out despite the fact I worked two jobs through high school. Trust me, I regret not saving when my expenses were close to minimal. I was careless and didn’t consider the importance of managing money well. My first year of OSAP money went towards my degree but also funded some unnecessary shopping and partying. Safe to say, I had some issues and made some silly mistakes.
Over time, as my personal development habits started to form, the more books I read, the more I realized how vital managing your money is. I don’t remember the exact time my mindset switched because it was a process, a long process that took a lot of learning, reading, listening, discipline, and a few years of realization and habit building. My perspective continued to widen when I started dating my Financial Planner hubby and now not only responsibly manage my money but have seriously set myself up for success at a young age.
One thing I have learned is that managing money and being smart with your finances has a lot to do with making sacrifices now so you can set yourself (and your family) up for success in the future. Oh, and it also takes time and requires work on yourself. You want to be prepared for when bad things happen – because they do – and save for what you want to achieve in the future. Money management has everything to do with building habits. Like anything else, you can have/gain/lose good and bad habits. That being said, I strongly believe in balance. My goal is to live a life being financially smart while still enjoying it.
Money Audit: Assess Your Current Situation
First things first, you’re not able to change or get better if you’re not clear on where you’re at now. The first step to managing your money like a boss babe is to assess your current situation. For some, this might be a painful experience but you need to get clarity in order to implement goals and the following steps. Tracking, whether it be for your finances, food, or workouts will help you grow.
Buy a $5 mini notebook or open up the Notes app on your phone and start tracking your finances for a week. And when I say tracking, I mean everything. You can also use apps like Mint. Don’t judge, don’t think too much of it, just write it down. At the end of the week, look through your notes and ask yourself, “Where am I mindlessly spending?”, “Am I buying anything (or things) that I don’t need?”, “Where/when do I spend the most money?”, “Do I buy certain things at different times of the day?”. Be a detective, determine your current habits. This exercise can provide some REAL clarity – are you eating out more than you should be when you could be eating at home? Do you find yourself overindulging on certain things? Did you spend $35 on lattes in a week?
From here you can determine where you can start saving, what can you stop buying, and the goals you’d like to set up for yourself.
Another step that can be helpful at this stage is to determine your net worth (Assets – Liabilities). Add up all of your assets, which can include your car (if it’s paid off), savings, TFSA, investments, home(s) then subtract them from your liabilities (loans, debt, mortgage, car payments). This is high level so you don’t need to go into granular details like monthly expenses. This will give you an idea of where you are now, where you need to go, and what you need to do about it.
The next step to manage your finances like a boss babe is to BUDGET. Now that you know your habits, it’s time to assess what you currently have and budget your finances. For the last 12 months, I’ve been using a spreadsheet to track my monthly inflow and outflow of money. Lack of clarity can be one of the scariest and most dangerous things you can do with your finances.
First off, start by inputting how much money you have coming in every month and when. Also, include what you currently have in any savings or investment accounts. This is typically your monthly pay cheque(s), any side hustle money, or streams of income. On the other side, list out all of your monthly expenses, rent, mortgage, car payment, hydro, groceries, nails, lashes, loans…everything. The key here is to know what you have coming in and out on a monthly basis, and obviously, you want more coming in than going out.
Having a budget doesn’t necessarily mean you have to have every single thing in your life organized to a tee. Know what’s coming in and going out allows you to determine if you have enough coming in, where you can save, and how much you can put away. Doing this at first can be eyeopening to some not so good habits.
The better you get at tracking, the better you can manage your finances. If you were running a business, you wouldn’t be a good owner if you weren’t constantly checking your numbers. You are the owner of your life and the CFO of your finances! Take care of yourself accordingly.
I’m no professional and investing is something I am still learning. Depending on where you are in your life/financial journey you should consider opening up a TFSA and/or an RRSP (if you’re in Canada). These are both savings accounts that come with different advantages based on your current situation and financial goals. WealthSimple has an extremely informative blog, helping answer and guide you on finances. This specific blog gives you a good breakdown on whether you should contribute to a TFSA or an RRSP.
At the end of the day, do your own research, and talk to an expert. Financial Planners are here for a reason and they’ll be able to help you determine what the best plan is based on your current situation and future financial goals.
Automate Your Savings
The third step to managing your finances like a boss babe is to AUTOMATE YOUR SAVINGS! This is one of the easiest ways I have been able to double my savings in under 12 months. Automating is great because it happens without you even having to think about it.
Typically, you can set this up with most major banks. Currently, I have my account set up so everytime I use my debit card $1.00 goes straight into my savings. You can set this up for as much or as little as you want. It’s a small amount but like anything over time can make a big difference.
My favourite way of automating my savings has been by using WealthSimple. Wealthsimple is a Canadian online investment management service focused on making “investing easier for millennials.” My hubby, a Financial Planner, recommended this app to me as a start in investing, which I went over in the previous step. WealthSimple allows you to set up automatic deposit as often as you want into as many accounts as you want (you can set up a TFSA, RRSP, or Smart Savings account). Currently, I have it set up so that on the 15th and 30th of the month when my paycheque comes in, my money is automatically taken out so I don’t even think about it. I’ll be going over how much you should be saving in the next step.
Another reason I love WealthSimple is that they have a ‘Smart Saving’ account which gives you a 1.95% interest rate on your savings. This is UNHEARD of in 2018. You’ll notice in almost every bank your money sits in your savings. My savings in my WealthSimple Smart Savings account will actually make me money over time. This is the secret of investing, make money while you sleep.
At the end of the day, you should be saving more than you are now. Setting up goals for your savings will help actualize the importance of it. Whether it’s to buy a big purchase like a home, or a car, or to start thinking of your future. Like I said, bad things can happen and when they do you want to ensure you have the money set aside to help you through it. Most of us also don’t think about retirement because it’s so far away, but the earlier we can start saving the more comfortable we can live in the future.
Following automation, this rule can be used as a guiding principle for where your money should be going. The 50/30/20 rule states that 50% of your income goes to necessities like the house or bills, 30% is allocated to wants or anything outside of savings/debt/bills, and 20% (preferably more) goes towards savings or paying off debt. You should always consider having an emergency fund that covers 1-3 months of expenses in case of an emergency.
Now that you have a budget tracking tool and the basics of automation, set up your automated savings so that 20% of your pay goes directly to your desired savings accounts. With your budget tracker, ensure your bills aren’t over 50%, and if they are you should consider looking into where you can cut back. If you find you really need to buckle down on your finances, save 30% and use the 20% for other items.
As always, I strongly believe in balance, the 30% can be used for dinner dates, personal expenses like makeup, clothes, or anything that lights you up. Life is to short not to enjoy it.
I didn’t want to overwhelm you with too much information so I broke this blog into two parts! My challenge for you is to pick just 1 or 2 of these steps that you might not already be doing and create a goal to accomplish over the next 3 months. Then pick 1-2 more and focus on implementing those. Most of these steps aren’t always quick and easy, but over time I promise you, you’ll see the difference.
Stay tuned for the last 5 steps which will be posted next week!
Message me if you have any questions and I’d love to hear how you’re implementing these steps!