Using Money Wisely
Today’s post is my take on using money wisely.
In today’s economic climate it seems that fiscal responsibility has been thrown to the wayside. Cheap credit for everyone, decent paying jobs and the instant gratification mentality really seems to have put us all in a very precarious position. Couple this with peoples’ lack of desire to learn about finances (as boring as it may seem) and even governmental policies (waaaaay more boring even)…and now we have a recipe for disaster.
How many Canadians remember the mortgage rates of the 1980s? They certainly weren’t even close to today’s rates. Imagine (or remember) having your mortgage rate in the high teens and even up to 21%. Just imagine that for a minute…you are paying 21% for your $300,000 mortgage.
Would that hurt?
Well they aren’t going to stay as low as they are forever, and as they creep up, we will need to cushion ourselves from that heavy blow to the pocket.
So how do we help keep ourselves out of trouble if things go bad?
By Using Money Wisely!!!
This doesn’t necessarily have to apply to the 1980s mortgage rate example, it can apply to any adverse event that happens to us, but we need to be prepared and even flourish regardless of what happens. Prepare for the worst but expect the best.
Here’s a short list of what I believe to be the most important ways of using money in the most advantageous ways possible.
Understand your financial situation
Create a budget that includes all your debts with how much interest and how much you owe for each. Be brutally honest with yourself here.
What do you spend money on that cannot change (mortgage, other debt, etc…)? What do you spend money on that can change (utility bills, insurance, etc…)? What do you spend money on that you really don’t need (cable TV, 24 beer a week, etc…)? Analyse everything in detail and really understand where you sit financially.
Trim the fat
Once you’ve analysed your financial situation, start finding places to reduce your costs. You’ll be surprised at where you can save. Search for better insurance rates, switch to LED bulbs for your house, cut back on vices, go with a cheaper cell phone provider.
Before you know it, you’ll have freed up quite a bit of cash which can be used elsewhere. It will take effort to trim the fat and you still need to have a life, so find a balance here.
Pay off debt
This is the foundation to financial freedom, but probably one of the hardest things to do if we don’t make a solid effort. That extra, freed up money from trimming the fat can be used to bump up your debt repayments, and will knock them off quickly.
If you’ve done your financial analysis properly, you’ll know what has the highest interest rates, how much you owe for each debt, your minimum payments and how long it will take to pay each thing off.
Start with the highest interest rates first, then work your way down. If you can finance all of it on a lower interest loan, then that may be a good idea, but please don’t start getting into the open credit once they are paid off. As you pay each item off, take the money that you were using for that debt and add it to the repayments of the next.Create a budget that includes all your debts with how much interest and how much you owe for each. Be brutally honest with yourself. Click To Tweet
The idea is to compound the payment process. Before you know it, all but your mortgage will be paid off (perhaps even that too). Do keep in mind though, not all debt is bad, but this is something for another post.
If you’d like some ideas for reducing monthly expenses, check out my post here. It has 10 solid ideas that can save you tons to put towards your debts.
Create a “why me?” fund
If you’ve gotten this far and paid off your debt and now have a surplus of cash coming in, congratulations!!! You are now an anomaly and in a very, VERY good position financially as compared to most. Now the goal is to stay in this position and improve upon it.
Here’s where the “why me?” fund comes into play.
“Stuff” happens and often times when we’re not prepared for it. Setting aside a percentage of this newly freed up money for the eventualities of vehicle repairs, house repairs or the dreaded kid’s wedding will help to prevent you from going back into debt for these events.
Something that I have been doing for years has been paying a little extra on all my utility bills. At one point, they even told me to stop paying or they were going to send me a cheque of the amount they owed me. Even having a few months of utility bills paid in advance will help when times get tough (or even at Christmas time).
Something that needs to be noted here, all of the above takes time, effort and due diligence but is it ever worthwhile. If you’re already in this awesome situation, then you know how it feels…LIBERATING.
Now that you’ve paid off all your debt and have emergency funds set aside, the possibilities are endless with what you want to do.
My choice on the matter, it’s time to generate some passive income and some fun active income. Whatever you choose to do, the big thing is to live within your means, avoid high interest debt like the plague and enjoy the comfort of not worrying about day to day finances.
Use your money wisely, it’s a tool, nothing more, nothing less.
- I am an avid Forex trader and multi-tiered investor. Over the years I've learned many money management lessons. It took hitting rock bottom, but I took my lessons and persevered. Today I am debt free (mortgage aside) and can enjoy what I have. I believe our money should work for us and is only a tool to enjoy the life we want to live.