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Fast Ways to Improve Financial Wellness

Canada is one of the greatest places to live on Earth. There’s free healthcare, beautiful landscapes, accessible education and so much more. However, Canadians have been hiding a nasty secret: their irresponsibility with personal finances.

The financial health of Canadians might not be great, but you can make changes today. In this article, we’ll discuss the issue of Canada’s relationship with money and how you can make an alteration.

Financial Health

Financial health, sometimes called financial wellness, is the current status of an individual’s personal finance situation. In addition, it’s how one is able to apply financial knowledge to their economic situation effectively. An assessment would normally consider savings, retirement plans, investments, outstanding debt, net worth and cash flows. People who lack financial health may have larger emotional stress, sleep problems, decreased productivity and tension in relationships.

Unfortunately, there isn’t a universal status of adequate financial health. Many factors impact one’s financial health, such as geographic location, lifestyle and financial goals.

Where do Canadians stand with financial health?

In the last year, COVID-19 wreaked havoc on Canadian’s lives — and their bank accounts. The reality is that Canadians have been putting off saving for a rainy day and have acquired excessive debt. A recent study revealed that 49% Canadians were $200 or less away from being able to pay their bills. Of those people, 25% said they were already falling behind on debt obligations.

Poor financial health is one thing, but Canadians are also experiencing mental and emotional turmoil over their finances. According to another study, 41% of Canadians reported that money was the leading cause of stress in their lives. A more recent study reported that 27% of Canadians stated that fear of financial impact from COVID-19 was the biggest contributor to mental health struggles. Money was a bigger stressor than getting sick, losing a loved one or loneliness.

What this means is most Canadians are living in a state of poor financial health. For Canadians that were already struggling, the pandemic may have pushed them over the edge. Some may be unable to achieve their life goals, such as buying a home or going to school. Others may be facing bankruptcy.

How did we get here?

Before we all start kicking ourselves for not saving more and overusing debt, realize that there’s a bigger issue at the heart of Canadian’s financial wellness — and it’s not the individual’s fault.

First, there have been economic factors at play, such as wage stagnation and increases in the cost of living.

Second, there are social constructs that influence how we think of financial health. For a while now, financial security is not considered as something unrelated to our well being. In reality, healthy finances are just as important as proper nutrition, shelter and basic education — but this concept isn’t understood the way it once was.

In addition, financial literacy isn’t something that’s taught in schools, talked about by corporations or employers, or covered in the media. Canadians have pretty much been on their own when it comes to managing their finances. It’s no wonder we’re struggling.

Managing Financial Emergencies

Financial emergencies are inevitable which is why it’s important to plan for them. Financial emergencies managed effectively result in no impact to credit or financial health. Below are common instances and how you can take steps to prepare for them.

The obvious financial emergency many Canadians have endured is COVID-19. The pandemic brought job loss, medical emergencies and many other socio-economic problems.

Job loss probably had the largest unforeseen impact on Canadian’s finances. Most anticipate expenses to rise or come out of nowhere, but most don’t expect to lose their job. If you’ve lost your job, the first step would be to check out government aid programs that you might be eligible for, such as employment insurance. Even with government support, it can still be challenging to meet financial obligations.

If you’re struggling, consider seeking help from credit counsellors or similar not-for-profit organizations. They can help you devise a payment plan while you are jobless. You can also reach out to creditors about payment deferrals or temporary payment plans while you get back on your feet.

Using Credit

Another point worth mentioning is don’t close credit cards or lines of credit. This might seem like a way to force you to spend less, but you may run into a situation where you need to lean on debt — and that’s okay when you’re jobless. In addition, closing accounts will affect your credit score negatively.

Fortunately, Canadians have free healthcare at their disposal, but there are still some medical costs to consider. For example, prescriptions, eye care, dentist costs or even vet bills for our beloved pets. An emergency fund can go a long way to cover these expenditures if you’re unfortunate enough to encounter one.

The financial issues listed above are common for Canadians, but life is unpredictable. Other unforeseen costs could be natural disasters, a change in living circumstances, breakups, a death in the family, taxes or repair costs.

Having an emergency fund to cover these costs when they arise can save your credit score and make the situation much less stressful to deal with. If you’re unsure of how much to save, three months worth of expenses is a good benchmark. How you go about saving is up to you — different things work for different people.

The Pillars of Financial Wellness

The ability to effectively handle financial emergencies without hurting your financial position is one thing. Overall financial wellness is another. In order to better your financial health, you should address your debt, savings and equity.

It shouldn’t come as a surprise that debt isn’t good, especially in large quantities. For this reason, creating a plan to eliminate your debt is an important step towards financial health. Carrying debt is cumbersome because it’s a constant reminder of your obligation. Paying it off will make you feel much freer — both financially and emotionally.

An emergency fund is not the same as savings. Savings are normally for a specific purpose, such as to buy a property, go back to school or retirement.

Once you’ve built up some savings, you should consider investing it too. Some investments expire on a certain date, such as GICs and bonds. These can be helpful when saving for an expenditure that will arise at a certain point in time.

Finally, equity is the amount of wealth you’ve built. Normally, equity relates to property or investments. For example, if you purchase a house and the value appreciates, you will have positive equity in the property which contributes to wealth. The same is true of other investments, such as shares or valuable items.

By addressing your debt, savings and equity, you will be able to improve your financial wellness. Keep in mind that the route to great financial health is not an easy one, you will face challenges and make mistakes along the way — and that’s okay. It’s all a learning process so that you can become more financially literate and create wealth.

Habits for Strong Financial Health

So far, we’ve gone over the overarching concepts of financial health. However, you might still feel lost in terms of where to start on your own financial journey. Below are financial habits that people with strong financial wellness tend to use.

Budget

Every Canadian works hard for their money. However, that doesn’t mean they use it wisely or know where it’s going. A budget is a plan on how you will spend your income every month. A budget can help you visualize your financial circumstances and create a plan to get where you want to be.

To create a budget, start by writing out all your income and expenses line by line. From there, create a budget that realistically suits your lifestyle. It can help to set reminders for upcoming financial obligations so you can prepare accordingly.

Credit

Your credit score is a big part of your financial health. If you have healthy credit, you likely have healthy financial habits. In addition, good credit can help you achieve your life goals or handle an emergency. You can monitor your credit score using free apps like Borrowell.

As a general rule of thumb, you should always pay your bills on time and in full to achieve good credit. There are other tricks too, such as keeping credit card balances low, paying down debt and keeping your accounts open even if you’re not using them. However, repayment history is the biggest factor that impacts your credit.

Debt

Debt is cumbersome to carry around with us, so why do we do it? It can be challenging to address it, especially after carrying it around for so long. The reality is that it will be a journey to pay down your debt, but you can become debt free by sticking to a plan. 

The first step to paying down debt is understanding how much you owe. From there you can devise a payment plan. There are two common strategies that individuals use: the highest interest rate method and the snowball method. The highest interest rate method is self explanatory, you pay off the debts with the highest interest rates first.

The idea is that you’re paying down the most expensive debt first so you save money in the long run. The snowball method requires that you pay off the smallest debt first then work your way up to the largest debt. The idea here is that you gain momentum from each repayment success thereby motivating yourself to become debt free.

Retirement plan and investment

The earlier you start planning for retirement and investing, the easier it’ll be to retire down the road. No one wants to work forever so try to get into the habit of paying yourself first. You don’t need to save everything, but save and invest something!

Improving Financial Wellness

Canada hasn’t been great about managing their financial wellness, but this isn’t entirely their fault. In any case, it’s better to look forwards, not backwards. Canadians should begin taking control of their finances and learn how to create wealth for themselves.

Studies show that it takes roughly 66 days for individuals to form new habits. If you start taking control of your financial health now, it’ll only take 2 months to improve your situation for the long run! 

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