Savings Savvy: Managing your financial health

Class introduction

You may have wondered before what it truly means to be financially healthy.

This includes savings and financial planning. But to get there, we first need to take a look at the basics: budgets. And that's exactly what this whole class is about.

Budget: separating expenses from income

Budgeting is a bit like flossing your teeth... you have to remind yourself to do it, but it's definitely worth it.

Budgeting is what allows us to keep track of what's coming in and going out of our pockets. And without that perspective, it becomes much more complicated to know how much money you can put aside.

First, we recommend that you start with your income. This obviously translates to your salary, but you may also be benefitting from allocations, pensions or rental income.

For expenses, let's start with those with a fixed amount, such as rent, mortgage, car expenditure, insurance…

Then, let's add varying expenses, such as restaurant outings and other more occasional expenses. Finally, because we are never completely safe from bad luck, we can leave some leg room for unexpected expenses.

My trick is to use my bank and credit card statements as a guide. That way, I make sure I don't forget or underestimate anything.

The Fonds de solidarité FTQ even has its own budgeting tool to help you better visualize your cash inflows and outflows, and to help you determine exactly what you can afford to save. If you realize that your expenses are greater than your income, you have two options: either you reduce your expenses or you increase your income.

While neither option is easy, the first is usually the simplest to implement. Take the time to prioritize your expenses.

Debts: distinguishing the good from the bad

Making a budget also means taking into account your debts. The first thing to do is to distinguish the good from the bad.

Good debts include those that help get a project off the ground, such as financing to buy a house or go back to school. Even if you have to pay them back eventually, these debts increase your net worth. Plus, they often have a lower interest rate.

On the other hand, bad debts, such as unpaid credit card balances, are the ones which will cost you the most in interest or penalties.

If you have identified bad debts in your exercise, make sure to pay them off before you start saving more. In general, it's much easier to prioritize the payment of debts with the highest interest rate.

Emergency funds: 3 to 6 months of expenses

Having an emergency fund could help you feel more peaceful. And I'm not the one to say it, but having peace of mind is good for your health. Basically, it's a separate account from your checking account that can help you stand up to unforeseen events. It also prevents you from giving in and treating yourself with your spare cash.

Depending on your ability to save and the stability of your income, a good emergency fund can represent around 3 to 6 months of expenses.

Class recap

Like anyone who wants to stay healthy, you need to exercise often. The same goes for financial health and budgeting.

Speaking of rolling, our next class will be about vehicles. Not as means of transportation, but rather as savings vehicles.