Everyone has both good and bad habits. Since Financial Literacy Month is set to begin this week, it’s the perfect time to review your spending habits.
If you want to become financially responsible, here are five great personal finance habits to follow:
1. Don’t overspend
Canadians have a spending problem. According to Statistics Canada, total household debt reached nearly $2.1 trillion in the second quarter. While about two-thirds of that is mortgage related-debt, the rest is non-mortgage loan and credit card debt. The easiest way to avoid going into debt is to spend less than you make.
2. Just say no
To prevent yourself from overspending, you should think about all of your purchases. An impulse purchase costing $10 may not seem like a lot. But 10 of those adds up to $100. While that’s not a large amount, five $100 impulse purchases are much more significant. That’s money you can use to pay down debt or put into a savings account. You should force yourself to think about any purchases for 24 or 48 hours. After some time has passed, you should have a better idea or whether the item is something you need or want.
3. Pay your bills on time
There are two benefits to paying your bills on time. First, you don’t get charged interest for making a late payment. And second, there won’t be a negative impact on your credit score. A payment that’s less than 30 days late generally won’t affect your score. But if you miss two payments in a row, there’s a chance your credit card provider will raise your interest rate. Setting up automatic bill payments can prevent any future problems.
4. Don’t buy extended warranties
When you buy a new appliance or television, you may be asked if you want to buy an extended warranty. If the item breaks down, the repair costs are covered. Sounds like a great deal, right? Wrong. One Sears Canada customer bought appliances last year, but the retailer has begun its liquidation sale and is no longer honouring most of those extended warranties, making them worthless. Also, some rewards credit cards already come with extended warranty insurance so you may already be covered if you buy an item with that card. Forget the extended warranty and put your money to better use.
5. Save for retirement
Many financial experts recommend you save between 10% and 15% of your gross (before-tax) salary. The earlier you start saving, the less you need to put away because of compounding. Starting now means you probably won’t regret it later. The easiest way to save is to put your money away automatically into an RRSP or TFSA. You can easily set up an automatic savings plan with your current financial institution.