4 pillars of solid personal finance

December 23rd, 2016  |  Personal Finance

Are you looking to be financially successful? You’re not alone. There are some key traits and habits that those who are financially successful possess, such as having a family budget and being laser-focused on repaying debt.

Here are four pillars of solid personal finance everyone should aim for.

Living within your means

Are you one paycheque away from financial disaster? You’re not alone. About half of Canadians live paycheque to paycheque. This is especially worrisome in the world we live, where jobs are far from guaranteed. With precarious employment the new norm, it’s more important than ever to “live within your means.” If you’re carrying a credit card balance that never seems to go away, chances are you’re living beyond your means. By getting your spending in check, you can reduce your financial stress and live a happier life.

Paying yourself first

Many people would like to save, but at the end of the month, there’s little money left over. How do you solve this? By paying yourself first. Paying yourself first means making savings a priority. There are many ways to pay yourself first, but the simplest way is to have a portion of your paycheque automatically deposited into a high-interest savings account. The money will be safe and sound before you’re tempted to spend it. With workplace pension plans in short supply in the private sector, it’s more important than ever to save for long-term goals.

You have a family budget

It’s hard to know where your money is going without a family budget. A budget breaks down your spending into various categories and helps give you a big picture of your finances.

While having a family budget is great, it’s also important to track your spending. Start by concentrating on the categories most people tend to overspend: food and entertainment. If you find your spending is out of whack, adjust your budget, or better yet, reduce your spending by finding more frugal spending choices. For example, go to the movies on Tuesday and pay half price, or only go for coffee twice a week instead of everyday.

Understanding the difference between good debt and bad debt

Debt may be a four letter word, but it’s not always a bad thing. There are two types of debt: good debt and bad debt. Good debt is anything that typically increases your net worth (real estate and student loans). Bad debt is any money borrowed to buy something that depreciates in value (a car) or is consumed immediately (a vacation). Sometimes good debt can go bad. For example, you could end up buying a home that leaves you “house rich, cash poor,” with little money left over for savings.

Interest rates aren’t going to be low forever, so take advantage and pay down your debt. Not only do you want to avoid taking on too much debt, you want to have a debt repayment plan, so you can one day celebrate being debt-free.

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