A Penny Saved is a Penny Earned

Everyone always says ''I want to be rich''. Fair enough, but how does one go about getting rich? If it were so easy we would all be millionaires. Your goal should be financial freedom that ultimately leads to personal freedom, which is what all people want, regardless of where they are in this world. It is the tie that binds all of humanity. The great thing is even if you aren't rich, you can still be financially free. It requires a lot of discipline and will obviously depend on your standard of living. That being said there are numerous things you can do to achieve this goal and it can be attained before you are too old to enjoy it. Obviously it will not come without a solid plan, focus, and sacrifice.

Take action now to secure your finances because nobody will do it for you. Unfortunately financial smarts are not taught in school like other subjects and I feel this is a terrible mistake. We would not be in this debt-ridden society with an economy in tatters if people understood money better, and didn't fall into the trap of living beyond their means because glossy magazines tell us what material things we must buy, and the banking elite are there, lying wait, ready to pounce. There is nothing wrong with wanting nice things. We all want to live comfortably. The important thing is to not overextend and bite off more you can chew with the multitude of financial products/services that bankers dangle before you on a stick. The entire sub-prime mortgage debacle in the US was built on this premise and totally run amuck.

Considering we spend a good chunk of our lives earning an income to support our family and lifestyle then you might want to consider getting your financial health to where it needs to be. With the cost of living always on the rise, it would be a shame to look at your life in a few years and be struggling to stay afloat

Here are some useful tips to improve your financial health.

1. Live within your means. If you can't afford to pay for something that is not essential (essentials being food, rent/mortgage, utilities, etc…) don't buy it. Simple as that. Too many waste necessary funds on luxury items that they have no business buying. If you absolutely need to make the purchase, do so in cash so you know you can genuinely afford it, and feel the loss of that money immediately and re-assess your budget. Using credit cards unless you are absolutely sure you can make your payment in full within 30 days is risky. Not only will it make your purchase ''out of sight, out of mind'' but when the balance is due you may not have anticipated it and begin the devil's dance of paying high interest on your card.

2. Pay off your debt. If you have enough money to pay for everything out of pocket, or have great discipline with paying your credit cards in full each month you are among a very select few. For those who are not, you can’t possibly improve your financial health if you are loaded with debt. Prioritize your debts as both good and bad. Good debts are those that are ultimately helping you acquire assets (mortgage for a property, loans for investments, etc…); bad debts are those that you have incurred to purchase liabilities (car, computer, entertainment costs, etc…). Try to get rid of bad debt first and attack the ones with the highest interest rates.

If you can't pay the full amounts, you will have to figure out what monthly payments will be necessary while still having enough cash-flow to cover your current expenses. Some financial advisors suggest paying off your smallest debt balance first. This way not only have you got one less creditor to worry about but it will also give you a victory that will encourage you to keep on with the plan. Negotiate better rates on your credit cards. If you have multiple credit cards you need to consolidate your debt by transferring the balances to one and cutting up the rest. The next step to getting your credit cards in order is to just call your credit card provider and ask them for a reduction in the interest rate. You will be surprised at how accommodating they will be if you threaten to switch to another provider with a better rate.

You may also consider getting a line of credit from the bank and pay off all your credit cards with it, because then owing the balance on the line of credit at 7-10% is much better than at 19.5% on your card(s). Remember to cut up your credit cards once you finish paying them off. It is wise to only have one and use it only when necessary. Also make sure it is a rewards card that gives you points like Air Miles, or points for gas, groceries, or retail store purchase points so you get something small back for using the card. Do not, however, overuse the card just to earn more points, which is a trap many fall into.

3. Collect and save your change. You would be surprised as to how much you can actually save up in a year. Let’s say you save a minimum of $1 per day in coins, in a year that would be $365. Get the habit of paying everything with notes. When you get the change set it aside each day and save it. You can either roll up these coins and put them in the bank or get the cash equivalent from the bank and spend it on useful things like groceries, gas for your car, and if there is enough leftover, treat yourself to a nice night out with your partner or friends/family.

4. Cut down on non-essentials. Minimize going to restaurants and having coffee every chance you get. You'd be surprised at how much the average person (who is in debt) spends daily on coffee, lunch, dinner, snacks etc... If the average coffee and lunch once daily costs you $8/day. Multiplied by 5 times a week becomes $40/week. When you add up your lunches and coffees over a full year it can be enormous. You would be better off making your own lunch and bringing your own coffee/drinks in a thermos. If you smoke…quit! It's bad enough you're burning money to sustain this terrible habit, but you are in essence paying to raise your risk of cancer!!!

Cut down on going to bars, movies, etc…No one says you have to cut all the fun out of your life, just but be frugal. You can still have fun and save money by having people over rather than going out. If you can carpool to work, or take public transportation do it. There are so many other little things that you could cut out of your lifestyle: unused newspaper/magazine subscriptions, home landline, cable/satellite TV, etc…the list goes on and on.

5. Start a savings/retirement plan. Once you have debt under control and your spending in check you need to start a savings plan that will help you save for both the short-term as well as for your retirement. The simplest savings plan is just to open up an account that gives you a higher interest rate than an ordinary chequing/savings account. What you should do is have the bank automatically debit a small amount of each of your pay cheques and deposit it into your high interest savings account. This way you don't have to worry about doing it and you ''pay yourself first''. If you decide to debit 10% of each pay cheque, this amount will safely be in your high interest savings account each time without you accidentally spending it beforehand.

You will force yourself to live off whatever remains in your everyday account balance for bills and living expenses. After a while you won’t even notice the money that is taken out for your savings. You don’t miss what you don’t see right? This is a great way to save up for your future financial health and when the account gets large enough you can think about putting it towards any number of investment vehicles like Real Estate, Savings bonds, CDs/GICs, Tax Lien Certificates, Tax Deeds, Mutual Funds, Stocks, acquiring businesses, or other. Just be sure to seek professional financial advice as well as your own research before making any big decisions. Happy financial planning!

Gopal D