Tax Tip Thursday

6 Key Steps to Financial Literacy

November is Financial Literacy Month! So, before it ends, we are going to talk about what “Financial Literacy” means.

Some Facts

Did you know that the average Canadian owes about $1.70 for every dollar of income they earn per year after taxes? In the 1990s, this number was only about $0.85 for every dollar net of taxes.

At the end of 2019, the average Canadian household debt was $72,950 including mortgage debt. If you exclude mortgages, it was only about $23,800. Think about that for a moment. The average Canadian owes almost $24,000 in credit card debt, loans, and lines of credit.

These are both really horrible stats, making it clear that there is a great necessity for financial education. Canadians are simply not financially literate enough! That is, too many people do not possess the knowledge and ability to make good financial decisions, which leads to prolonged debt, low credit scores, and a lack of savings.

What Can You Do?

There are a few things you can do.

Step 1: Review Your Finances

This is a very scary experience for some people, but you should do it! In fact, the scarier it sounds the more you need to do it anyway. Take stock of the money you have coming in, understand where it is going out, and get a grasp of what you owe and to whom.

Ideally, you should write this down. It will help you figure it all out and will mean you have something to refer back to later.

Additionally, get as accurate as you can. Take every dollar into account, even your coffee habit!

Step 2: Discover Your Mistakes, If Any

Ask yourself some of these questions:

  • Do I have an emergency fund?
  • Am I living within my means?
  • Am I paying all my bills on time?
  • Am I contributing enough towards my debts?

Ideally, you should answer “yes” to all of these questions. If you didn’t, you can start fixing it by following the rest of these steps!

Step 3: Start Managing Your Credit More Effectively

Credit is a complicated topic to many, and it can be difficult to manage. Try these solutions to help you get on top of it:

  • Only use your credit cards if you have the cash to pay it off
  • Try to pay more than just the minimum towards any debts you have
  • Consider leaving your credit cards at home if they are too tempting for you
  • Check your credit! Know where you are starting from.

Step 4: Make a Budget, Document It, and Stick To It.

Putting something down in writing makes it much harder to ignore! That’s why you should write out your budget when you make it. Since you can’t ignore it, you’ll be a lot more likely to stick to it, and then you’ll do a better job saving money.

If you need help with this valuable exercise, check back next week for a guide!

Step 5: Discuss Your Finances with Family or Financial Advisors

Two minds are always better than one. Discussing your finances with a trusted friend or advisor (or accountant, of course!) can give you some much-needed perspective on your current situation.

Also remember that speaking to a financial professional can help you implement your own personal financial plan.

Step 6: Stay Informed and Keep Learning

We live in the age of information. Make use of it! There are no shortages of resources that you can use to learn about money and finances.

Ask For Help If You Need It

Not everybody has a simple situation with an easy fix. Sometimes we can find ourselves in trouble and we can’t find way out that works for us. Well, good thing we’re here to help! We are financial professionals who can help you take a look at your finances and make a plan to get back on track. Book an appointment today to get started.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.