The Canadian Money Roadmap

Strategies to Improve Your Finances Today

September 06, 2023 Evan Neufeld, CFP® Episode 97
Strategies to Improve Your Finances Today
The Canadian Money Roadmap
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The Canadian Money Roadmap
Strategies to Improve Your Finances Today
Sep 06, 2023 Episode 97
Evan Neufeld, CFP®

It is so easy to spend countless hours learning about something without taking any action on it and financial topics are no exception.  

But the best way to learn something is to put down the books, podcasts and social media and just try it for yourself.  

So in this episode, I provide ideas for things that you can do TODAY to improve your financial situation.  Not earth shattering, ground breaking things with lots of complexity but simple, approachable and practical steps you can take now and expand on in the future.

If you're a complete beginner or further along in your investing journey there's something for you here.

Show Notes Transcript Chapter Markers

It is so easy to spend countless hours learning about something without taking any action on it and financial topics are no exception.  

But the best way to learn something is to put down the books, podcasts and social media and just try it for yourself.  

So in this episode, I provide ideas for things that you can do TODAY to improve your financial situation.  Not earth shattering, ground breaking things with lots of complexity but simple, approachable and practical steps you can take now and expand on in the future.

If you're a complete beginner or further along in your investing journey there's something for you here.

Speaker 1:

Hello and welcome back to the Canadian Money Roadmap Podcast. I'm your host, evan Neuveld. On today's episode, we are taking a look at some things that you can practically do to actually make a difference in your finances right now. Another super practical episode today. I am excited to do some more of this type of content because it is so well received and I think it is really meaningful for people to actually have some tangible things that you can do to improve your finances. I spend time on Twitter or X, or whatever it's called now, and Reddit, and it seems like the general theme on those platforms is just so negative. But at the same time, there's people that reach out to me every single week and they are in the opposite situation. So I feel like the people that are listening to this podcast are a little bit of the silent majority, or the people that are wanting to actually make changes as opposed to complain about them. And so you know, in a world that defaults to negativity and complaining, I want this podcast and those of you listening to be a community of people who have a default towards action in their finances. Yes, this is education based, but I want to continue to provide more actionable tips that you can use to improve things constantly instead of feeling overwhelmed and bogged down by money. So if you're listening to this podcast, it's already a great start, and I don't think the typical Twitter and Reddit downers are present here in too high volume. But no matter where you are in your financial journey, getting stuck can still be a reality. So this episode is all about taking action. My challenge to you is to pick something from the list of things that we're going to talk about it and accomplish it this week, not this year, not this month. Get it done. This is the start of September is kind of like an unofficial new year in a way, like summer is done, kids are back at school feels like a fresh start in a lot of ways, and so let's use September here, the first week of September, to get something done. So it's super easy to keep listening to more podcasts and reading new things and learning about the perfect way to do something, but the best thing that you can do to learn more is to start doing. No matter where you are. If you're a beginner, somewhere intermediate and a little bit more advanced, you can still do something new that will move your financial life in the right direction, but the first step is by doing that, taking a perhaps literal first step. So, for example, if you want to get physically fit and you know that you're going to need to do some exercise probably for the rest of your life if you actually want to stay in pretty good shape, reading more about the proper form on on squats, and what clothes to wear for exercising and what supplements to take if you've got this ailment and that thing, what's the best time of day to exercise yeah, these are all good and there's all sorts of research and whatever. But you could also just drop to the floor and do some pushups or setups or whatever, or you could step out the door and go for a walk or a run and then figure out the rest along the way. So, again, this podcast is about a default to action. This is doing your pushups, this is going for the run because it's quick and easy, and things that you can actually do today. So let's get started with the first category of people that might be brand new to the podcast or to getting a start on your financial life or trying to rebuild something after, perhaps, a divorce, or maybe you're new to Canada or something like that. Here's some things that you can do this week to advance your financial life. Number one emergency fund. I've talked about emergency funds before and a couple episodes ago, even on my three account financial system, I talked about emergency funds. This is some cash set aside in a savings account that you can access in the case of an actual emergency. This is not the vacation fund, it's not the new furniture or the car payment fund. This is in case you lose your job or you have a reduction in income. You've got unforeseen expenses, maybe a tax bill that showed up out of nowhere from a reassessment from years ago. See that happen from time to time. Setting aside some money for an emergency fund would be an awesome thing to do to take action on your finances today. Number two if you have credit card debt and you're picking away at it every month, you're doing a good thing. But credit cards are stupid, expensive and the interest on them is not worth carrying For any length of time. There's no benefit to not paying off your credit card every month. So if you are working on paying down your credit card debt, one thing that you can do today is make an additional credit card payment than what you were already doing. Find another 25 bucks somewhere and just put it on the credit card. That'll be one of the best things that you can actually do to reduce your interest cost. On that, number three, some people might put this in the advanced category. I will not. Okay, so this thing is get a will. Having a will is so, so important to make sure that your loved ones are taken care of. If you were to pass away, flying without a will is a big nightmare for them, and so making sure you have a will ensures that what you want to have happen with your house and with your money and anything else that you own is done in the way that you want. This is about taking control of your finances. It's a proactive step that you can take. Today I have an episode I think it was back in April with an estate lawyer, and she gives a really good argument for why everybody needs to have a will. If you want to dig way back in the archives, I've got another episode with Elizabeth Williamson, who's talking about the same thing. So, getting a will, that's another one. Number four I'm a big proponent of having a tax-free savings account as a tool to save for the long term, before you can figure out the investing component and how much you're going to invest all those different kinds of things, you need to have a TFSA. So if you work with somebody at the bank, if you work with an advisor, if you have the know-how of how to use a brokerage account or a self-directed account or a robo-advisor, I would say, just start by opening a TFSA. There's no risk of having it open. But now, once it's open, then you can take the next steps. But everybody in Canada would benefit from using a TFSA. I can say that wholeheartedly. There's no one that would be penalized from having a tax-free savings account open. Number five of things that you could do today for someone who's a relative beginner track your expenses for the last three months. So I don't want you to take the next three months and forget about it. No, just go back into your bank statements, into your credit card statements, everything like that, and look at your expenses for the last three months. I mean literally look at every transaction. And in some cases I've had some people tell me that they've had really good success by manually writing down the transactions into a new spreadsheet. It seems like a monotonous exercise, and it is, but by actually spending the time to put pen to paper or fingers to keyboard on every single transaction, you will have a way better idea of what you're spending actually is than just kind of scrolling through your banking app on your phone. Most people will have an aha moment or a oh my goodness, this is a disaster moment, like I spent how much on skip the dishes or you know all these little things that really add up over time. Maybe you have a few Amazon purchases that you didn't make. I discovered that one one time. I had another one where we we were actually subscribed to a service twice, and so when you're quickly like browsing through your banking, it's like, okay, that makes sense, I'm paying for that, I'm using that, whatever. But then when you actually spend the time to look at every transaction and think about it, say, wait a second, I just paid for that two weeks ago, what's going on here? And so we were able to catch this. This was a few years ago, but yeah, things happen all the time for people at any sort of financial understanding level. So tracking your expenses for the last three months give you a pretty decent idea of where things are at for you. Last thing I would recommend for this category of people that are just getting started. If you have a TFSA open, if you have a savings account open, what you could do is set up an automatic transfer from your checking account to either your savings account or your investments. If that is a foreign concept to you and you work with an advisor or someone at the bank, or you can call somebody and have access to a financial planner through your investing platform. Give them a call and they will help you out with this. It's very, very simple. Sometimes we call it a pack or a pre authorized contribution. That would be an awesome thing to do to get started. In most cases, you can set up automatic investments for as little as 25 bucks a month. Obviously, more than that is definitely possible. But if you're looking to build up your emergency fund or save for a big purchase or vacation or something like that, setting an automatic transfer from your checking account to your savings account takes all of the discipline out of making that good decision and planning ahead. So setting up an automatic transfer is the easiest way to get bad discipline or the general human condition out of the problem of saving for the future. So those were the main ones for people that are just getting started. There's plenty of other things that you can do. If you have an idea, let me know, but that's setting up an emergency fund, opening a TFSA, make an additional credit card payment if you have an outstanding balance there, getting a will tracking your expenses and starting an automatic transfer to your savings or investments All great things that you can do if you are a beginner to learning about your money. Now, for someone that's looking to take those things a step further, here are a few things that you can do to improve your current situation a little bit more. So one thing that's very, very simple let's increase your automatic savings. So, if you're already doing it, maybe increase it a little bit. If you had a raise this year for inflation, yes, the cost of living also went up, but the cost of saving should also go up too, because you're going to have to save more money to account for the higher cost of living in the future as well. So, increasing your automatic savings to coincide with an increase in income. If you have the capacity to do it, I would say do it, because you can always stop those kind of things too. Those kind of systems are never set in stone, so maybe push yourself a little bit to increase your automatic savings and investing. Next thing find a bill payment that you can automate. I talk about automation all the time and I found a couple things that we just kind of subconsciously were paying for manually every month, like a couple of utilities. Wait a second, can we just pay this automatically? Maybe in the past we couldn't, for whatever reason, but when I looked we definitely could. So now you've got a number of our bill payments automated. Find one of those things that just takes another thing off your plate and make sure that you never forget it. That kind of thing happens, but automating it is a really good way to go. Number three if you've gone through and tracked your expenses for the last three months, you might have seen a subscription service that you probably do not use. How about this? Cancel it and then immediately increase your automatic savings by that same amount. There's this story of a couple of guys that are standing outside, one of them smoking and the other guy says smoking that's so expensive. Do you realize that if you've been smoking for the last 30 years, that you could have bought a Ferrari with all that money? And the other guy who's smoking and just looks at him and says well, where's your Ferrari? The idea is that, even though you might be spending money on things that aren't necessarily benefiting you or their necessities, if you don't, then take that money and do something specifically different with that amount. You're just gonna spend it a different way. If there's money in the account, you're probably gonna spend it. That's just human nature. It's gonna happen. So this is kind of in part one, part two find a subscription or find something that you're spending money on regularly, cancel it or stop doing it, whatever, and then in the next breath, go over and increase your automatic savings or investment by the same amount, so that way that all the dollars are already accounted for. Number four if you have multiple debts, even if they're relatively low interest, like a car payment or mortgage, home equity line of credit, maybe a credit card, maybe student loans, whatever. If you have multiple debts, something that you can do here is set a priority so that you actually have a plan for paying them off instead of just paying the prescribed amount to every single one of them. Most people have a goal of paying off their debts sooner than the standard payment, and so there's two different ways that you can set a priority for paying off your debt. The first one is paying off the highest interest amounts first. This will save you the most in interest, because you're getting rid of the most expensive ones first. Second one takes a look at the size of the debt, and so the idea here is that you would prioritize the lowest balance first, so that you have fewer of these things to focus on every single month. If you need a psychological benefit, or like if you particularly benefit from seeing financial wins, I would really recommend you do that Second one, where you find the smallest balance and just kill it and then move on to the next one. Some people call this the avalanche method of paying off debts. Both are really good strategy because it means that you're paying off debt faster either way. Next thing that you can do to improve your finances for someone who's kind of in an intermediate stage, calculate your savings rate. This one will be a little bit interesting for you. It's not as actionable, but it requires some action to get the data. So if you're going through and tracking your expenses, let's take that a step further and track your income and for the last few months anyways, or maybe you could do it for the whole year that would be a great way to do it and track your take home pay so whatever ends up in your bank account after taxes and anything else that comes off your paycheck and then figure out how much you're actually investing for the long term every month. So some people are saving for an emergency fund or a near term purchase, but I would say, do this based on your long term investing. So maybe your RSP contributions or if you use your tax free savings account, like a tax free retirement account, which I am a big proponent of take that amount which you're saving and divide it by your total income and that'll find your savings rate. It might be lower than you think, because for most people it actually is. Before you can really improve that number, you have to know what it is first. So I would say, just figure out what your savings rate is. Last one for this category would be to get a power of attorney setup. Sometimes you'll do this alongside your will this is what my wife and I did but a power of attorney is something that you'd set up. That would come into play if you are not able to make decisions for yourself. Maybe you're in a car accident or you lose mental capacity for whatever reason. Your power of attorney can come in and make decisions and sign off on things on your behalf. This one is really, really important to have. I would say it's less of a priority than having a will, so I put it kind of down the scale for people that are more intermediate. If you don't have one already, that would be a really great thing to do to make sure that you're taking care of and what you want to have happen in case you're incapacitated in some way. Yeah, a power of attorney would be a great thing to set up with a lawyer. If you have a lawyer that you worked with to get your will, reach out to them and they'd be glad to help you. The last thing here would be for people that are a little bit more advanced. These ones are a little bit less obvious, perhaps, or less specifically practical, because usually at this stage, this is when you are going to want to work with a professional to find something that's specific to you and your situation. But here's some general things that you can do at this stage. Some people might put this one at the very beginning. It all depends on how you think about things, but at this stage, you could definitely think about opening an RESP or RDSP for your kids if they would qualify. So an RESP is a registered education savings plan. The reason I'm putting this in kind of the leader category here is that I'm a proponent of the oxygen mask principle that you need to take care of yourself before you take care of someone else. I know it's your kids, but you're already feeding them, putting a rover over their head, getting them, getting them clothed, the whole thing, swimming lessons and soccer. Their future education is just one expense along the way, and so if you haven't opened an RESP for your kids yet, you are not neglecting your kids. There's plenty of options to help kids pay for post-secondary school. There are very few options to help you save for retirement and emergencies and things like that, and so I would put RESPs as a lower priority in general, but this is something that you could do if you're at a more advanced stage of understanding your money, and our DSP is something that I haven't talked about on the podcast before, but is a registered disability savings plan. These are really, really unique, and so if your child has a disability of some sort, I won't start defining those here, but you can look this up and see what types of conditions would qualify for such a plan. Generally speaking, if you qualify for the disability tax credit, this is something that you would be able to apply for either for yourself, actually, if you would qualify personally but also for your kids. That's much more common. The reason you want to take a look at either of these plans is that there's a lot of grant money available to people that contribute, rdsp in particular. So if you're looking to really optimize your saving and investing strategy, taking advantage of free money is a good way to do that. So these RESP and RDSP would be two accounts that you could set up to do that. Next thing that you can do, you can learn about your portfolio a little bit more. You can use a free tool like Morningstar. So if you go to Morningstarca, you don't have to log in or anything like that. There's a search bar at the top and you can type in the ETFs or the mutual funds that you're currently invested in or the individual stocks if you do that kind of thing. But what I'm going to recommend here is best done with more diversified options like mutual funds and ETFs, so you can find something that you are invested in. Go to that search bar, type in either the fund code or the ETF ticker and you can poke around on here and learn a little bit about your current investment. So on Morningstar, just one of a few different tools that you can use, but this one's publicly available and it's free. On the main page, once you type in your fund code or your ETF, you will see the performance section first and you'll see some charts that'll compare your fund or ETF to, to the category that they're in or the index that they're in. It'll give it some sort of ranking. I would say Don't worry about that too much. That's just more interesting than than anything, because it all depends on what you're in. So even index funds will underperform alternatives from time to time. This is more so. Just the idea that you want to learn what you have. That will be done more so, not on the performance tab as much, but I would say, click over to the portfolio tab Again. If you're a morning star and this is where you can kind of see what you have you can see what we call asset allocation. So what is your investment fund comprised of? I'm looking at one from dimensional here so you can see how much you have in Canadian equity, us equity, international fixed income, all these different things. Again, it's not super instructive, but it is interesting to see perhaps if you have more Canadian exposure than you think or more Bonds than you thought. That could be something to take a look at for yourself. Now, if you scroll down, these things are a little bit more advanced, which is why I'm putting it in this advanced category. But you can take a look at the factor profiles and the styles that your investments represent, and so dimensional is more of a value-based Investment approach, and so you can kind of see this on their factor profile, where it kind of skews more towards the value side, whereas the category skews more towards the growth side, because the largest companies in the category are really growth focused and a bit more expensive. Same thing with skewing towards small companies, so they will own a few more small companies compared to the average, and so you can kind of see how that all works out there. I'm going to stop right here, but all this to say that a lot of people don't have a great understanding of what they have, and this will be something that you can do To figure out what questions to ask or what kind of research to do, as opposed to oh, this is good, this is bad. It's like just a general theme that I see is that most people have no clue what they actually own, and so if you've kind of covered off some of these other things and you've got started in your investing, it's like okay, well, let's take a look at this portfolio and see what it actually is. If you work with an advisor, just ask them instead, because I hope they should be able to give you a really good answer as to what you own and why. But if you're a diy investor, using a tool like morningstar is great to understand better what you actually have and perhaps some things that you might be exposed to that you didn't know you were. While you're doing this number three, the thing that you could do here is like you could look to decrease costs, so in some ways, there are opportunities to save on cost. A lot of the critiques of mutual funds is that they will try to mimic an index, but they just charge a higher fee. There's not as many of those out there here in canada my experience then you'd expect, but if you're in one of those Types of funds that has a very, very similar investment Thesis to its index, but it charges a really, really high fee. An index fund is probably going to be a better option for you. If you have an active fund for a really specific reason, perhaps it's a smaller part of your portfolio you like to invest in a certain way. I'm not going to fight you on that, but just know that that's going to be an expensive or a more expensive part of your portfolio. But if you're looking at the really diversified, broad-based part of your portfolio, you can take a look on Morningstar or even somewhere else, like the fund facts of your investment fund or your ETF the ETF facts and you can see what the expenses are. You can find that as part of the management expense Ratio and you can start to poke around and see if there are opportunities to get a very similar investment style and approach For perhaps a bit lower cost. Even if you work with an advisor, believe it or not, we have access to low-cost investment options as well. It's a common misunderstanding that if you work with an advisor, that means that you work with Expensive funds. In some cases that is true, but sometimes it's not. So anyways, worth asking. The last thing that I could recommend for someone to do in the situation if you're in the stage of optimizing your financial life and I feel I'm wholeheartedly Excited to make this recommendation try giving some money away. You will feel great about doing so. It doesn't have to be a lot necessarily. But take a look around. Get yourself out of out of the equation. You know if you're saving enough for retirement, maybe you've paid off your debts. All these other things that that you're already doing and many of you listening are in this situation. I would say step out of your comfort zone. Find a charity that you'd love to support. There's plenty of folks out there that could use Some assistance, either in your local community or abroad. Think of people whose homes are burnt down here in canada, in hawaii All sorts of opportunities to to help out others. Your food bank will gladly accept some, some donations, and you get a tax credit for it too. So it is a bit of a one-two punch here, where the psychology of you parting with your money is actually gonna be a net positive in terms of it releasing the grip that it has on you, but at the same time you also get a little bit of a benefit. You don't get all of it back, you don't, but you get a decent chunk of it back when you file your taxes. So giving some money away is a really great thing to do for people that feel like they're already doing everything and they want to know what's next. It's like try helping someone else. Even for those of you who don't have it all figured out yet, giving some money away, I think, is a really important part of our financial life. It's something that's part of my financial life on a regular basis, and it's really neat to see the difference that your money can make in your community and around the world too. So, anyways, these are some things that I thought of for taking action on your finances here in the first week of September. I know it's already Wednesday. If you're listening to this. Perhaps you're listening to this later. That's totally fine. If you're listening to this in the next seven days, find one thing from this list and see what you can do to actually move the ball forward in your own financial life. If you're new to the podcast and you say I just started listening and learning and whatever, I don't feel like I know what any of these things mean I've got about nearly a hundred episodes you can go back and listen to. That's totally fine. Go back and listen to some of those things where I go into a bit more in-depth on these and many other topics as well. That is just fine. Lots of free content out there to give you the tools you need to be able to make smart decisions with your money. So again, if you're new here, welcome here. I hope this was a valuable podcast for you, but if you've been here for a long time, I really appreciate you being here as well. I appreciate you spending the time with me and trying to make a difference in your life and for your family's financial life too. So thanks again for listening and we'll see you next week. Thanks for listening to this episode of the Canadian Money Roadmap Podcast. Any rates of return or investments discussed are historical or hypothetical and are intended to be used for educational purposes only. You should always consult with your financial, legal and tax advisors before making changes to your financial plan. Evan Neufeld is a certified financial planner and registered investment fund advisor. Mutual funds and ETFs are provided by Sterling Mutuals Inc.

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