Did you learn how to manage your money when you were in school? The truth is that few schools cover financial literacy along with reading, writing and arithmetic, a problem that follows kids into adulthood. The good news is that it’s never too late to learn. Here are a few basic financial rules everyone should know.
Spend less than you earn
Spending less than you earn means you’ll have money left for emergency and long-term savings, and paying down your debt. However, as Canadian household debt creeps up, spending less money than you make appears to be a finance lesson we didn’t learn in school.
Budgets are beautiful
Organizing and tracking household monthly income and expenses makes it easier to find problem spending areas and meet your short- and long-term financial goals.
Save (at least) 10 percent
Save consistently every month. Start building an emergency savings fund for unexpected expenses like car or home repairs. Then save for longer-term goals like children’s education or your retirement.
More earnings, more savings
Increase your automatic transfer to savings (you have one of those, right?) with each and every raise you get. This grows your savings as your income grows. However don’t feel you must save all of your earnings increase. Split your raise in half, saving half and using some to pay down debt or for having fun.
Plan for short-term events too
Even if you didn’t learn to save for retirement at school, the message to do so appears everywhere. Yet remember to plan and save for short-term goals too, like annual vacations, purchasing a new vehicle, or home renovations, so you don’t become dependent on borrowing money (and paying interest) for everything.
Compound interest can be your friend
Understanding how compound interest works is one of the most valuable money lessons you’ll learn about savings and loans. Compound interest is calculated on an initial amount (your deposit or your loan), and on the accumulated interest of a deposit or loan. Use motusbank’s handy Savings Calculator to see compound interest grows your savings over time. The earlier you start saving and the longer your money stays invested, the better compounding will work for you.
Teach your kids about money too
Don’t count on your kids learning money management at school. Introduce basic financial lessons at home, whether this involves games to teach kids financial basics or simply talking about it.
Financial lessons and resources for Canadians
Want to test your own financial knowledge? Try the Financial Consumer Agency of Canada’s (FCAC) online financial literacy self-assessment quiz.
Check out our helpful tools to help you make smart decisions when it comes to your money.