Most of us are looking forward to putting 2020 in the rearview mirror. Who knows what 2021 will bring, but there are some things we can do to make sure it’s a financially brighter year! Since the new year is just around the corner, we thought we’d highlight 21 financial moves you can make to get smarter about money in 2021!
21 Ways to Get Smarter About Money in 2021
Depending on your financial situation, not all of these financial tips will necessarily apply to you. However, we’re sure you’ll find a few that you can benefit from. With that said, we have a lot of ground to cover, so let’s get on with the list!
1. Create a Budget and Track Expenses
This is number one on our list because of just how essential it is! Now, budgeting isn’t designed just to limit your spending – it also helps you reach your savings goals. To create a budget, it’s necessary to track your expenses. This lets you see how much you’re spending and what you’re spending it on. That way, you can cut back on wasteful spending to put more money towards the things that really matter.
We’ve made financial planning even easier for you with our free, downloadable Budget Planner + Expense Tracker (all instructions included!). When you’re tracking expenses, you’re likely to be surprised at how much you spend on unnecessary items. Be sure to also check out our savings calculator to see how much money you can save by cutting out different expenses and spending items.
2. Pay Off Credit Cards
This year, make it one of your goals to put a dent in your credit card debt! If you’re carrying balances on your credit cards, you’re probably paying hundreds of dollars per month in interest fees – talk about a waste of money! There are two main approaches to debt reduction:
- The snowball method. This involves paying off your smallest debt first (while maintaining minimums on your other debts), regardless of the interest rate, to eliminate your number of debts quickly.
- The avalanche method. This involves paying off your highest-interest debt first (while maintaining minimums on your other debts), to save the most money in interest fees.
You can read more about each method here to determine which method is right for you. Our Debt Calculator will also help you see how much interest you’ll pay using different repayment strategies and how long it will take you to be debt-free.
3. Consider a Credit Card Balance Transfer
Do you have a high-interest credit card? You may be able to transfer it to a lower-interest credit card. Just think: Turning a 20% APR into a 10% APR to reduce debt! With more of your payment going towards the balance and not interest charges, you can pay down credit card debt much faster.
This tip comes with a caveat, however: You need to be financially-savvy about balance transfers as there can be risks. If you have a balance transfer option and are thinking about taking it, be sure to read our blog on The Risks of Credit Card Balance Transfers.
4. Use a Prepaid Card
Are you finding yourself overspending and missing payments on your credit cards? Consider not using them for a while and use a prepaid credit card instead to make your purchases. With a prepaid card, you load your own money onto it and when you use it, the amount is deducted from the balance.
When you run out of money, it ceases to work until you load more money onto it. Since it’s not issued by a lender (it’s your money, after all), you never have to worry about overspending, going over your limit, or missing a payment.
5. Watch Those ATM Fees
Why pay fees to get your own money? Using another bank’s ATM can cost you that bank’s fee plus your own bank’s fee. Sometimes, your bank will charge to use their own ATM, too. So, plan your purchases and transactions ahead so you don’t have to use that cash dispenser. And remember, a cash advance from a credit card almost always costs much more than a regular transaction, regardless of where you go, so just say no to cash advances.
6. Consider a Free Online Bank
Is your traditional bank charging you a monthly fee just for keeping your chequing account with them? Many do this if you don’t maintain a minimum balance.
There is some good news – a number of online-only banks, such as Tangerine, EQ Bank, Simplii Financial, Motive Financial, and most credit unions offer free chequing accounts. Even though they do not charge you for chequing, they still pay interest on your account balance. Most online banks also provide free or low-cost chequebooks.
7. Use Bank Roundups
Find out if your bank or credit union offers debit purchase roundups. With roundups, your debit purchases are rounded up to the nearest dollar and the extra amount is transferred to your savings. If they do, sign up for it. If they don’t, consider a bank that does.
The way roundups work is like this: You spend $3.75 on a latte but you’re charged $4.00, and that extra $0.25 moves to your savings account. You’ll be surprised at how little you’ll miss those extra cents, and at how quickly they add up in your savings account.
8. Automate Savings
In addition to roundups, use your bank’s app to automate savings. This means diverting a portion of your paycheque into a savings account every time one is deposited into your chequing account.
Paycheque to paycheque, the app will continue to move some of your earnings into savings. Alternatively, you can automate savings through an online bank app that offers higher interest rates on savings accounts, like Tangerine (more on this in tip #10). You can choose the amount you wish to be withdrawn from your chequing account, and which day of the month you would like it to happen, such as the same day your paycheque gets deposited.
Most people get used to having less to spend, and over time build a nice little nest egg. It also helps stop you from spending your entire paycheque! Be sure to speak with your bank about your options.
9. Automate Bill Payments
Are you missing bill payments and accumulating late fees (and hurting your credit score in the process)? Set up automated bill payments that will pull money directly from a designated account to pay the bills of your choice when they become due (some companies also give you a discount on auto-payments).
If you’re concerned the automated payment could cause you to overdraw from your chequing account, set it to coincide with the days your paycheque hits your account. At the very least, set up “payment due” notifications to remind yourself to make your payments manually.
10. Use a High-Interest Savings Account
Almost no one is getting rich through interest rates on their traditional savings accounts, which average about 0.05%. To make your savings work harder for you, consider a high-interest savings account (HISA) that pays better interest. Some HISAs to check out include Tangerine, EQ Bank, and Wealthsimple Cash.
11. Purchase a High-Interest GIC
Not keen on the risks of investing but tired of earning next to nothing through your savings account interest? You might want to consider purchasing a Guaranteed Investment Certificate (GIC). GICs are extremely low risk and can grow your money faster than a traditional savings account.
It works like this: When you purchase a GIC, you are lending the bank to your money for a certain amount of time (a few months or up to five years) in exchange for interest. The longer the term, the more you earn. At the end of the term, you get back your money plus interest.
A GIC may be a great way to earn interest on money that you’re saving for something long term (i.e., college, a home, a wedding, etc.) and have no intention of spending it for a certain period of time. Be sure to shop around for the best rates, and understand that if you withdraw your money early, there could be penalty fees.
12. Start (or Contribute More to) Your Registered Retirement Savings Plan (RRSP) Account
One of the best RRSP benefits is that contributions are tax-deductible. So, when you put more into your RRSP, you’re actually lowering your taxable income. That means not only are you lowering the amount you have to pay in taxes each year, you’re increasing your retirement nest egg – talk about a win-win! The Government of Canada publishes the annual limit you can make on RRSP contributions each year.
13. Opt-in (or Contribute More to) Your Employer-Sponsored Retirement Plan
Some employers offer group RRSPs to their employees. Group RRSPs are generally limited to certain types of mutual funds, and include a matching contribution. For example, if you opt-in to the group plan, your employer chips in an additional amount, usually a certain percentage of your salary up to a certain amount. The employer portion of your total contribution is basically free money, just like a bonus.
If you don’t take advantage of an employer-sponsored RRSP, you’re leaving money on the table! Be sure you understand the specifics of any employer-sponsored retirement plan, but for most people, they are a winning proposition. (And don’t worry, if you leave the job or are let go, the money moves with you.)
14. Review Your Credit Card/Bank Account Statements
Too many people ignore or throw away credit card and bank account statements, and wind up paying for charges they didn’t make, duplicate charges, and other errors. Be sure to review them each month and compare them to any expense tracking you do.
15. Review Your Credit Report
While not a way to earn money, a very good way to be sure you’re not duped out of money is to check your credit report at least once a year. Doing this can also uncover identity theft and fraud before it becomes financially devastating.
Studies from the Canadian Anti-Fraud Centre (CAFC) reveal that there has been a 30% increase in identity theft since 2017, so be sure to check your credit report. You can request a free copy of your credit report once a year from each of Canada’s credit reporting agencies, Equifax and TransUnion. One good practice is to get a copy of your credit report once every six months, alternating between Equifax and TransUnion so you don’t exceed the limit. Checking your credit report on a regular basis is also helpful if you’re concerned about your credit score.
16. Use Couponing Apps
Grocery store expenses are the number one household budget killer for most people (especially now in the era of COVID and lockdowns) so why not save where you can? These days, you don’t even have to clip coupons anymore. There are many online couponing sites and coupon apps that even help you earn money on grocery store purchases. Learn more in our blog How to Coupon in Canada to Save Money.
17. Use Budgeting Apps
We’ve already discussed the importance of budgeting, and today it’s easier than ever with online apps. You’re probably thinking, “those don’t work.” Au contraire! The 2019 Canadian Financial Capability Survey (CFCS) reveals that Canadians who rely on web-based budgeting tools are among the most likely to stay on top of their financial commitments and spend within their monthly income. Check out our blog on the 10 Best Budgeting Apps for more info.
18. Set Up an Emergency Fund
Layoffs, a sudden health issue, a destructive storm… these things can creep up when we least expect them. Rather than rely on credit cards to help you get through these unplanned financial burdens, you should always have an emergency fund.
It’s important to understand that this is different from a savings account. An emergency fund is for an actual emergency, and the funds should never be touched unless an actual emergency occurs. While a car repair or a last-minute gift may seem like an emergency, truthfully these aren't unexpected costs—you know they're coming eventually, so they should be budgeted for.
19. Consider Passive Investing
While we recommend focusing on paying down debt and saving up money, we know that some people can’t resist investing, so we’d be remiss not to include passive investing on our list.
Passive investors generally don’t have the time, skill, or patience to manage their own individual stocks or mutual funds. Instead, they build a portfolio of index funds that attempt to mirror the market, with the goal of matching the overall performance of the entire index. Again, this isn’t our forte, but if this interests you, we recommend checking out What is an Index Fund from our friends at Young & Thrifty.
20. Go Green
Today, most of us are more concerned about the environment than ever. But did you know that by going green, you can also save money? This means reducing your carbon footprint by cutting down on transportation costs, making healthier lifestyle choices, recycling, reducing your energy consumption, and more.
How it all pays off is too much to delve into within this blog, but if you’re interested in saving money and helping save the planet at the same time, check out our blog Go Green and Save Money.
21. Stay Financially Informed
If you’re here, you’re interested in getting smarter with your money (good for you!). So, stay informed by reading books, following blogs, and listening to podcasts about personal finance. We’ve done your homework for you by reviewing the best of the best:
You’ll also want to be sure to subscribe to our blog. We regularly publish blogs that provide valuable money-saving advice and offer insight on how to reduce debt.
Start the New Year with a Free Debt Assessment
We’re looking forward to a fresh start in 2021 – how about you? The best place to start may just be with a free debt assessment. Whether you’re looking for debt help, having trouble paying your bills, or just planning for the future, our caring and certified Credit Counsellors can help.
All of our counselling is free, and we offer both phone and virtual appointments. If you’re interested in booking a free counselling session, just give us a call at 1.800.267.2272. Not ready to pick up the phone just yet? Book a free debt assessment online instead. Otherwise, here’s to a happy and healthy 2021!
